FIXatdl and the 2010 Flash Crash presented at Princeton Qwafafew
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Transcript of FIXatdl and the 2010 Flash Crash presented at Princeton Qwafafew
FIXatdl and the
2010 Flash Crash
Robert Golan – DBmind TechnologiesRick Labs - CL&B Capital Management, LLC (& FIXatdl Co-Chair)
Please Note: This is our personal views which may not pertain to our Client’s Views or Opinions.
Outline
Introductions Flash Crash – May 6th, 2010. FIXatdl – What is it? A proposed solution Future Directions Summary Q & A
Flash Crash ReferencesNov 5th meeting Webcasthttp://www.capitolconnection.net/capcon/cftc/110510/CFTCwebcast-live.htm#
Preliminary report:http://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/opa-jointreport-sec-051810.pdf
Follow up reporthttp://www.cftc.gov/ucm/groups/public/@otherif/documents/ifdocs/staff-findings050610.pdf
SEChttp://www.sec.gov/spotlight/sec-cftcjointcommittee.shtml
CFTChttp://www.cftc.gov/About/CFTCCommittees/CFTC-SECJointAdvisoryCommittee/index.htm
Preliminary Report on May 18th Table of Contents I. INTRODUCTION .............................................................................................................1 II. EXECUTIVE SUMMARY..............................................................................................2 III. GENERAL MARKET CONTEXT ............................................................................ 11 IV. PRELIMINARY FINDINGS....................................................................................... 17 A. Securities Markets ..............................................................................................17 1. Broader Market Drop and Recovery................................................................. 17 2. Securities that Suffered Declines Disproportionate to the Broader Market ..... 29 B. Futures Markets..................................................................................................59 1. Background....................................................................................................... 59 2. Role of Liquidity in Markets............................................................................. 63 3. Analysis of Large Traders................................................................................. 66 4. Preliminary Findings......................................................................................... 69 C. Clearance and Settlement................................................................................... 69 1. Securities Markets............................................................................................. 69 2. Futures Markets ................................................................................................ 70 V. NEXT STEPS................................................................................................................... 72 A. Areas for Further Analysis ................................................................................ 72 1. Securities Markets............................................................................................. 72 2. Futures Markets ................................................................................................ 74 3. Coordinated Analysis........................................................................................ 74 B. Potential Regulatory Responses......................................................................... 75 1. Securities Markets............................................................................................. 75 2. Futures Markets ................................................................................................ 79 APPENDIX A OVERVIEW OF THE SECURITIES MARKET STRUCTURE...A1 APPENDIX B OVERVIEW OF THE FUTURES MARKET STRUCTURE .........B1 APPENDIX C CROSS-MARKET CIRCUIT BREAKERS.........................................C-1 APPENDIX D FUTURES MARKET INFORMATION...............................................D-1
The Findings: September 30th, 2010
Turbulent Day in the Market EU Debt Crisis @1pm: Liquidity Replenishment Points (LRP’s)
activated more then usual. @2:30 - VIX (up 22.5% and Dow down by 2.5%). Buy Side Liquidity for the E-mini declined 55%
($6B to 2.65B) & SPY by 20%. @2:32 – An Algo was used to sell 75,000 E-mini
contracts worth $4.1B using only the Trading Volume parameter and disregarded the price or time parameter’s. This was executed in 20mins.
Other notable events happened but we want to focus on the Algo setup and execution.
Algo Parameter Settings
… <Strategy name="VWAP" uiRep="VWAP" wireValue="1" version="1" providerID=“CompanyXYZ" fixMsgType="D" > <Regions>
<Region name="TheAmericas" inclusion="Include"/></Regions>
<SecurityTypes><SecurityType name="CS" inclusion="Include"/>
</SecurityTypes>
<!-- input Parameters -->
<Parameter name="StartTime" xsi:type="UTCTimestamp_t" fixTag="6062" use="optional" /> <Parameter name="EndTime" xsi:type="UTCTimestamp_t" fixTag="6063" use="optional" /> <Parameter name=“Price" xsi:type="Int_t" fixTag=“4063" use="optional" /> <Parameter name="MaxPctVolume" xsi:type="Int_t" fixTag="6064" use="optional" />
<Parameter name="DisplaySize" xsi:type="Int_t" fixTag="6066" use="optional" /> <Parameter name="Trigger" xsi:type="UTCTimestamp_t" fixTag="6075" use="optional"/> <Parameter name="InExcludeAuction" xsi:type="Int_t" fixTag="6077" use="optional" /> <Parameter name="Rx" xsi:type="UTCTimestamp_t" fixTag="6083" use="optional" />
<!-- Validation Section --><val:StrategyEdit errorMessage="End Time should be later than Start Time">
<val:Edit field="EndTime" operator="GT" field2="StartTime"/></val:StrategyEdit>
</Strategy>
Note: Example Only – not a real – validating set of parameters.
If it’s this simple – what’s the catch
Central Governance Compliance and Certification Monitoring and Control Implementation Guides & Education Budget and $$$ Transparencies to the right levels without
compromising the Algo’s Special Sauce. Multi-Asset and Multi-Industry Standards
Cooperation. Versioning and Maintenance
Some of the Algo Players
Citadel Investment Group Bloomberg Credit Suisse Deutsche Bank Goldman Sachs Barclays Morgan Stanley Susquehanna Investment Group UBS Etc.
Prime Service Providers
Hedge Fund
Mutual Fund
Hedge Fund
Exchange Exchange Exchange
t
Algorithmic
Trading
System
Prime Service Provider
Custom
VWAP
TWAP
Sniper
Finally, Something New! Systemic Risk
Risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading failure, which could potentially bankrupt or bring down the entire system or market. (Schwarcz, Steven 2008)
CAPM gone?
Bricks for the Tower of Babel"They are one people and have one language…”
Legal or Universal Entity Identifier Product or Instrument Identifiers
LEIs are not that simple!
up to date for name, address, electronic address, legal entity type changes.
link parent, subsidiary and affiliate relationships (one LEI to all other links)
Link all persons who own or effectively control that entity LEIs that own various interests in other entities in various cascades including interlocking
Every security ever issued by that particular LEI Entities that are freestanding legally, but economically are
virtually 100% just combinations and permutations of other legal entities, such as exchange traded funds
Derivative products (futures, options, etc.) built off large baskets of underlying securities
Mortgage pools Mortgage pool tranche
CFTC/SEC searching for a Fun, New Toy
Algos that describe OTC derivatives That are simple like tinkertoys
The train has left the station!
JOINT STUDY ON THE
FEASIBILITY OF MANDATING
ALGORITHMIC DESCRIPTIONS
FOR DERIVATIVES
April 7th!
Who will set the standard (3)
Composing contracts: an adventure in financial engineering
Simon Peyton Jones, Jean-Marc Eber, Julian Seward. ICFP 2000.
Following three slides are from that presentation
But what does it all mean?
We need an absolutely precise specification of what the combinators mean: their semantics
And we would like to do something useful with our (now precisely described) contracts
One very useful thing is to compute a contract’s value
Summary
A small set of built-in combinators: named and tamed
A user-extensible library defines the zoo of contracts
Compositional denotational semantics, leads directly to modular valuation algorithms
Risk Magazine Software Product of the Year Prize
Jean-Marc has started a company, LexiFi, to commercialise the ideas
Beats higher order logic hands down for party conversation
Routine for us, radical stuff for financial engineers
What about FIXatdl?
Algorithmic descriptions of derivatives are really algo trades for EVERYONE: Equities FI Options Futures FX Cross Asset
Some other possible Solutions
Consolidated Order Book with Pre-Analytic FIXatdl enhancements.
CEP/FIXatdl Integration points for surveillance and monitoring.
Centralized Algo Compliance and Certification
Etc.