Trading on the stock exchange in the 21st century is an extremely high-tech process. In order for an investor to be able to make a deal, various trading terminals are being developed, brokerage systems are being created that can cope with a heavy load, APIs are being implemented for them, high-speed communication channels are being laid, new technologies are being put into operation, etc. This is not surprising - after all, between success and failure, profit or loss in the stock market is often only a fraction of a second. Therefore, everything should work like clockwork and very quickly.
We have already talked about direct connection technologies that are used to send trade orders directly to the exchange, bypassing the broker's systems. However, direct access costs a lot of money and not all traders can afford it, who nevertheless want to make transactions with the maximum speed. In this topic, we will talk about how we carried out a complete upgrade of our trading system, which allowed us to create an infrastructure product that meets world technology standards. stock market.
Welcome to the Matrix
ITinvest has always been not just a broker that provides clients with the opportunity to trade on the stock exchange, but also a technological developer of products for trading. Our founders are people who had experience in programming and in general have always been associated with technology. Therefore, part of the company's strategy has always been the development of its own software products.It has always invested both money and time. As a result, at the beginning of the 2000s, its own trading system it-trade, which included modules for processing trade orders, middle and back offices, as well as a digital signature system for security. In addition, we have created a line of our own trading terminals. One of them - SmartTrade has become very popular on Russian market and, in principle, still remains a reliable and convenient means of entering trading orders into the market and analyzing the market itself. Realize trading operations customers could also use the web interface.
The system has been operating for more than 13 years and the entire set of software products is objectively outdated. It was becoming more and more difficult to maintain them, to develop functionality (there are more than 1 million lines of code in one SmartTrade terminal), in addition, the architecture itself also ceased to meet modern requirements - we had two trading racks with servers, and in order to develop the company's business, they the number had to be increased, which would have caused problems with controllability and synchronization.
As a result, all efforts were spent on the maintenance and normal functioning of the shopping complex, and there was no talk of developing new products. Requirements for the speed of work and its quality were constantly growing, and it became more and more difficult to meet them within the framework of the old architecture and paradigm. In addition, the "old" trading system had one weak link - its core, the risk management system (RMS), which in principle could not be parallelized and duplicated. Accordingly, its failure could stop trading.
All this put us in front of the need to create a new trading system that would meet the best world standards. Due to its matrix structure, as well as due to the fact that the apparatus of matrix theory was used in the calculation of risks, the new system was called MatriX, that is, "Matrix".
Architecture
If in the brokerage system of the previous generation, clients received all exchange data (orders, transactions, account status, etc.) by connecting to a single access server, then in the Matrix project, it was decided to divide these data flows into two main “banks”: servers for receiving orders (Order Mamagemegent Servers - OMS), and servers that supply clients with market data and account information.The complex hardware uses PowerEdge blade servers and PowerVault storage systems from Dell.
Technology and hardware
In addition to the architecture, the quality of the brokerage trading system depends on the quality of the software that implements the main functions, as well as on the reliability of the hardware on which it runs. In order to be sure that our product really complies with world standards, tenders were held among suppliers of both hardware solutions and software developers.As a result, the hardware part of the new system was provided by Dell, and software(and some hardware) - supplied by IBM.
Dell PowerEdge Servers
Under each of these balancing servers there are several more servers that solve local problems. Client connections are distributed among them so that each server receives the same load.
Our servers are connected to each other and to the exchange trading system using a special high-speed bus built on IBM Data Power X75 and software MQ Low Latency Messaging.
Interesting fact: the MatriX project is the first time these servers have been used in Russia. By the way, even some problems were associated with this - the United States recognizes these technologies as having a dual purpose. That is, there is a possibility that someone uses them for military purposes. Due to the delays associated with all this, the delivery dates of the equipment have shifted by as much as half a year - and we are still lucky that the famous Jackson-Vanik amendment was canceled, otherwise it is not known how everything would have turned out in the end.
Behind this bus are already exchange gateway servers. Through which of them to send a specific request, or from which of them to take data, the bus decides on its own. In principle, this is enough for the normal functioning of the entire system, but we have also added a risk management server to it, which, unlike the previous system, is no longer the central link, and any problems with it do not cause the entire system to stop.
Another innovation is the so-called FIX servers, which allow you to connect applications written under the FIX protocol to the MatriX TS. We will talk about this decision in more detail in a separate topic.
The final architecture of the system looks like this:
What did it give?
Such a “matrix” approach to building the system made it possible to reduce the damage from possible failures (the failure of a particular link does not lead to irreversible consequences), and also makes it easy to scale the system in the future. Most importantly, the speed of work has dramatically increased. Now the application processing speed in the system is from 500 to 2 microseconds - this is a very good result. The total time for an order to pass from the moment it enters the "Matrix" to its output to exchange systems is from 2 to 5 milliseconds (excluding losses on communication channels to the system) - this is approximately 40/50 times faster than in the system of the previous generation it- trade|SmartTrade…For traders trading with hands, this is of course not so important, but for algorithmic traders using robots connected via API, this is a significant advantage.
Other advantages of the new trading system include:
- Increased performance (up to 2000 requests per second in one thread, more than 10 million requests per trading day).
- The already mentioned possibility of accessing external systems via OMS-FIX 4.4 Gates.
- Single cash position (SDP) and own risk management for client portfolios.
Single cash position
The service of a single cash position for clients has become one of the main "features" of the entire new trading system. Its essence is as follows:When working with the previous version of the it-trade/SmartTrade trading system, the client was provided with a separate personal account for each trading platform. For example, the Moscow Exchange Stock Market is an MS account; Derivatives market of the Moscow Exchange - account RF; Currency market Moscow Exchange - FX account (non-deliverable) or CD account (deliverable) and others. With such a division, securities and cash located on one trading platform cannot serve as collateral for transactions on another.
When using a single cash position, the client is provided with a single account with the MO identifier, which includes several trading platforms at once:
- Stock market of the Moscow Exchange (all instruments traded in T+2 mode).
- Derivatives market of the Moscow Exchange (futures, options).
- Currency market of the Moscow Exchange (non-deliverable mode).
- London Stock Exchange section IOB (ADRs of Russian issuers).
It is easiest to understand the benefits of a single cash position on simple example. If in the old trading system it-trade for the purchase of 100 shares of Lukoil (LKOH) 43,800 rubles would be required as collateral (the value of a share as of October 22, 2013 was 2,030 rubles, the amount of collateral for the T + 2 market is 438 rubles, i.e. . 100 x 438 - 43500), and for the sale of 10 futures contracts for shares of the same issuer LKOH-12.13 (on the same date, 1 futures cost 20,650 rubles, collateral - 2,132 rubles) would require 10 x 2132 = 21320 rubles. In total, to complete two not the largest transactions, the amount of funds required to secure the transaction would exceed 65,000 rubles.
In the new trading system, it would be equal to 26,746 rubles. The difference is quite significant - it turns out that you can manage your own funds more flexibly, they can work, and not stand idle in a state blocked as collateral.
Need for Speed
A single cash position, as you might guess, with all its advantages, can be of interest to traders and traders of any type - from investors who do not make many transactions to scalpers who do not remove their fingers from the keyboard.At the same time, it is obvious that the speed advantages of the Matrix trading system most of all attract high-speed traders (HFT traders) who trade on the exchange using mechanical trading systems. It is this type of traders that "makes" most of the turnover of all popular stock exchanges. Such traders play a big role in the stock market ecosystem (for more on trends and prospects for algorithmic trading, read our special topic). But no, even the most successful in theory, algorithmic trading strategy, cannot work normally in practice if proper fast action is not provided.
Therefore, both the exchanges themselves and brokers are constantly developing their own infrastructure - only in 2010, exchanges, telecommunications companies, algorithmic hedge funds, corporate and private algorithmic traders on technical re-equipment More than $2 billion has been spent worldwide to increase the speed of trading.
Domestic stock exchanges (in particular, Moscow Exchange) also follow this trend. If in 2010 the execution time of orders in the trading systems ASTS (MICEX stock market) and FORTS ( futures market RTS) were 5-15 and 15-50 ms, respectively, then already in 2013 the figures were 0.700 ms and 3-5 ms. Now the execution time of orders in the core of the exchange system does not exceed 50 microseconds.
When looking at all these efforts, it is clear that brokers simply do not have the right to lag behind, so a further upgrade and improvement of this link in the chain, which the application goes through on the way from the user to the exchange, is simply inevitable.
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Single Cash Position (CSP) is a modern service with great opportunities margin trading, available in our MATRIx trading system. EDP has replaced the rigid division of a brokerage account into several trading floors, but if desired, the client can open separate accounts, the balances on which will not be taken into account in the Single Cash Position.
Together with the Single Cash Position, you will have a single “Money” (MO) account, which can be used on several trading platforms at once:
- Moscow Exchange stock market (all instruments traded in T+2 mode)
- Derivatives market of the Moscow Exchange (futures, options)
- Foreign exchange market and market drago precious metals Moscow Exchange (non-deliverable mode)
- Market of foreign valuable papers St. Petersburg Stock Exchange
Assets that were purchased on one trading floor of the market, you can use as collateral in other markets included in a single cash position.
In addition to personal accounts that are included in the EDP and are combined within one cash account with the suffix - MO (Money), the MATRIx trading system may contain personal accounts(portfolios) not included in the EDP. For them, the old suffixes are preserved. The assets in these accounts cannot serve as collateral for transactions in other accounts. Including on accounts included in the EDP.
A single cash position is convenient because:
You have access to a unified risk management for all trading platforms.
You have the option of balancing risk across correlated instruments.
The amount of collateral and the cost of funding operations will be lower.
You will be able to use previously unavailable arbitrage operations.
The size of the "shoulder" will be increased.
You will not need to transfer funds between the sites included in the Single Cash Position.
Example 1: Reducing margin amounts. Shares of LKOH (OJSC NK Lukoil) purchased with “their own” money (without “leverage”) serve as collateral for a position under a futures contract for the RTS index.
Example 2: Balancing risk across correlated instruments. Purchased shares of SBER (Sberbank PJSC) are collateral short position under the futures contract SBRF-6.18 (June futures for Sberbank shares) and form an arbitrage pair, the risks of which are balanced.
Example* Buying 100 SBER shares and selling 1 futures contract SBRF-6.18
Share price: RUB 21,426 The initial margin for opening a position is 9,411 rubles.
Futures contract price: 21,719 rubles. GO - 4,202 rubles.
Calculations for trading platforms, which are included in the EDP, occur on a single MO account.
The cash position is the amount of cash that the company, investment fund or the bank has on its books at a certain point in time. The cash position is a sign financial stability and liquidity. In addition to cash, this position often includes highly liquid assets such as certificates of deposit, short-term state debt and other cash equivalents.
BREAKING DOWN "Cash Position"
The cash position refers specifically to an entity's cash level in relation to its expenses and liabilities. Internal stakeholders look at the cash position as often as daily, while external investors and analysts review the organization's cash position in their quarterly cash flow statement. A stable cash position is one that allows a company or another company to cover its Current responsibility combination of cash and liquid assets.However, when a company has a large cash position above and beyond its current liabilities, this is a powerful signal of financial strength. This is because cash is needed to finance growing operations and pay off liabilities. However, too much cash can often signal a waste, as funds generate very little profit.
Other organizations such as commercial and investment banks, as a rule, must have a minimum cash position, which is based on the amount of funds that it has. This ensures that the bank has the ability to pay out their account holders if they require funding. When an investment fund has a large cash position, it is often a sign that it sees few attractive investments in the market and sits comfortably on the sidelines.
Cash position and liquidity indicators
The organization's cash position is usually analyzed by liquidity ratios. For example, the current ratio is defined as a company's current assets divided by its current liabilities. It measures the organization's ability to cover its Short-term liabilities. If this ratio is greater than one, it means that the company has sufficient cash to keep going.
The cash position can be found by looking at the free cash flow companies (FCF). This FCF can be found by taking a company's operating cash flow and subtracting its short and long term capital expenditures.
Cash position example
External analysts often look at a company's FCF to evaluate its performance. For example, Chase Corp. as of July 14, 2016 has an FCF that is 40% higher than his net profit, which represents an FCF yield of 7.2%. This means that its available FCF is US$34 million per annum, which is expected to be used to cover liabilities for credit line at Bank of America.
When making a monetary transaction, the bank acquires 1 hard currency and sells another. In a deal with the immediate supply of hard currency, this means investing his resources in hard currency, which he sells. Since the bank takes a position for a period, then, buying a claim in a certain currency, it perceives a promise in a different currency. As a result of these operations, 2 different currencies arise in the assets and liabilities of the bank, in the form of currency or in the form of obligations, the exchange rate of which changes independently among themselves, leading to the fact that at a clear moment it can exceed the liability, forming, or vice versa.
The correspondence of the claims and obligations of the bank, including its off-balance sheet operations, in foreign currency characterizes its monetary transaction. If they are equal in terms of a certain hard currency, the cash position is considered closed, and if they do not match, it is considered open. An open cash position can be short, since the promises for the sold currency exceed the assets and claims in it, and long, as long as the assets and claims for the acquired currency exceed the liabilities and liabilities. With a long , the trader, in anticipation of the rise in the rate, buys the base currency. Among other things, it will be considered that there is an open long position in some foreign hard currency, since there is an asset denominated in this foreign currency in the equilibrium, for example, purchased Eurobonds.
In the same way, the bank will have a long deal in the US dollar, since in the absence of attracted funds in this currency, including contributions from the population, balances on the accounts of legal entities, the bank has issued loans denominated in US dollars. With a short position, in anticipation of a depreciation, they sell the base currency. Among other things, it will be considered that there is a sell position in this hard currency, since there is a liability, for example, loan promises denominated in dollars. For a sample with a bank, the position will become short when, in the absence of issued loans, balances on correspondent accounts denominated in hard currency, the bank has attracted funds denominated in it, for example, deposits. After the implementation of the negotiable sale for long position either a negotiable buyout for a short position, or if the assets in a certain hard currency become equal to the liabilities in the same hard currency, the cash position is said to be covered.
A short cash position can be offset by a long position, if the size, time of the transaction and the SV of these positions are similar. This principle is important, because an open cash position is associated with the risk of bank losses, when by the time of the counter-transaction episode, in other words, the purchase of previously sold hard currency and the sale of previously purchased hard currency, the exchange rate of these hard currency will change in an unfavorable direction. As a result, the bank will either be able to acquire the smallest required amount of hard currency under the counter-transaction than it previously sold, or it will be obliged to pay for the same necessary amount a larger equivalent of previously acquired hard currency. In two versions, the bank bears the expenditure of its funds associated with changes in the exchange rate. It is always present in the presence of open positions, both long and short.
Since an open cash position is created on certain hard currency, in the course of the bank's constant operations in the currency market, cash positions constantly appear and disappear. The change in the amount of the cash position happens, as noted earlier, with the help of a configuration of the amounts of liabilities and assets in FCC. The change of assets and liabilities, moreover, happens with the help of specific current monetary transactions, and transactions related to the movement of money.
The occurrence of losses or gains will depend on the direction of the change in the exchange rate and on whether the bank is in a net long or net short position in foreign currency. The net position is oriented by adding all net positions, taking into account the symbol, in contrast to the calculation of monetary risk, where the position symbol is not provided. In the event that a bank is long in a currency, the repricing will cause a profit when the SLE rate rises and a loss when the SLE rate falls. Conversely, a short position will give rise to gains when the foreign currency rate declines and losses when the foreign currency rate rises. Banks constantly monitor the change in the monetary position, set a limit for any partner bank, evaluating the monetary risk and the likely outcome in the event of its immediate full coverage at the available monetary rates. This task is complicated by the fact that the cash transaction itself includes cash and urgent transactions, absolute at different times at different rates.
The result of the cash position is positive for the bank if it held a long transaction in hard currency, the rate of which increased. But this success can be fully realized only when all cash positions are closed at current rates. This operation is called the realization of the benefit and traditionally happens during periods of an intense SLE trend, stopping its movement, and from time to time changing its dynamics in the opposite direction.
The creation of currency positions throughout the day is justified by the conduct of arbitrage monetary transactions in time and can be excluded by the simultaneous covering of any transaction by a counter-transaction. But big banks resort to counter-deals exclusively in the global crisis. Maintaining long or sell positions in some currencies for several days or weeks is regarded as cash transactions, since if short-term arbitrage positions can be considered the result of requests from the bank's clientele, maintaining an open cash position for a long time is a responsible action aimed at taking advantage of exchange rates.
Analysis of the bank's currency position and ways to adjust it
The work of banks on money markets associated with the management of assets and liabilities in foreign currencies, monetary risks that appear on the issue of the introduction of different currencies during execution banking operations. Currency risk- this is the risk of loss or shortfall in benefits in the state currency associated with a negative change in the exchange rate. In addition, risk is the possibility of losses or additional costs during execution. monetary transaction, stimulated by the missing analysis of this transaction with a monetary asset, miscalculation or unforeseen situation in general. Currency risk is considered a variety of monetary risks, therefore, when assessing it, the same informants are used, in fact, when assessing the unified state of the bank, on the one hand, and in general, an adequate assessment of the financial position of the bank is not possible in the absence of a separate assessment of monetary risk.
The cash position appears on the date of the decision of the transaction for the purchase or sale of foreign hard currency and other monetary values, also the date of crediting to the account, debiting from the account of profits or expenses in foreign hard currency. The indicated dates also characterize the date of reflection in the reporting of the corresponding changes in the value of the open monetary position. The value of the open cash position is guided by reliable information accounting, reflecting the claim to acquire and promises to deliver funds in designated currencies both for transactions completed in real settlements on the reporting date, but also for transactions for which settlements will be completed in the future, after the reporting date. Traditionally, the value of the cash position is calculated in terms of hard currency for an explicit period relative to the state hard currency. In the case of active participation in international transactions, the bank needs to constantly keep records of open positions in the respective currencies.
These positions show, at any point in time, unfinished transactions in a specific hard currency, regardless of the timing of transactions. An assessment of the probable outcome of closing an open position is achieved by recalculating all amounts of long and sell positions into national hard currency at the current rate at which transactions have every chance of being covered, taking into account the delivery time of hard currency for urgent transactions, in other words, the date of execution of the terms of the transaction. This recalculation is carried out in 2 steps: first, all positions are recalculated into the most common hard currency, for example, the dollar, then the dollar amounts or their total - into the national hard currency.
Factors influencing the currency position
For operations that provide big influence for changes in the cash position include:
- receiving interest and other earnings in foreign currencies;
- payment of interest and other costs in foreign currencies;
- for the purchase own funds in foreign currencies;
- conversion operations with immediate delivery of funds, no later than 2 business banking days from the date of the transaction decision, and their delivery for a period exceeding 2 business banking days from the date of the transaction decision, including operations with cash foreign hard currency;
- urgent transactions, including forward and futures transactions, settlement forwards, " " transactions, options, for which claims and promises appear in foreign hard currency, regardless of the method and form of settlement of these transactions;
- other operations in foreign hard currency and transactions with other monetary values, except for precious metals, including derivative monetary instruments of the currency market, even the exchange market, if the terms of these transactions take into account the exchange in any form, in other words, the conversion of foreign hard currency or monetary values, except for valuable metals;
- acquired irrevocable guarantees denominated in foreign currency. Included in the calculation of the open cash position from episode 1 of non-payment on the loan, which was secured by ;
- issued irrevocable guarantees denominated in foreign currency. Included in the calculation of the open cash position from the stage when target evaluation authorized bank, it becomes possible for the beneficiary to submit claims for the payment of a foreign currency amount.
Banks will try to hold long cash positions in strong currencies, especially when they are waiting for their appreciation, and sell positions in weak currencies. If there are unexpected changes in exchange rates: a strong hard currency becomes cheaper, and a weak one rises in price, then the bank has probable expenditures of its funds, which it is given the opportunity not to note, but to wait until the long position's hard currency becomes more expensive again, and the short position's hard currency becomes cheaper, after close this open position with a profit.
To avoid monetary risk, it is necessary to coordinate assets and liabilities for any hard currency, also strive to form an overlapped position for any hard currency at the end of the period, or it is possible to compensate for the imbalance of assets and liabilities in foreign hard currency by mismatching the sizes of sold and purchased hard currency, thereby reducing monetary risk to zero, following the principle: a sell position in some hard currency can be offset by a long money position if the size, duration and hard currency of these positions are similar. This principle is particularly important because it specifically serves as a prototype for all methods of covering monetary risk.
The value of losses or income arising from changes in the monetary rate, embodied in the state FCC, is oriented as the product of the open monetary position for a predetermined FCC by the change in the exchange rate of the state FCC relative to this FCC, in other words, by adjusting the value of the monetary position, it is possible to influence the value of losses.
The Bank is obliged to constantly review the state of the open cash position solely for the purpose of monitoring compliance with the limits of the open cash position established by the Central Bank of the state, and in order to analyze the possible expenses of its funds and profits associated with maintaining an open cash position.
Ways to regulate the monetary risk of a currency position
There are 2 main ways to adjust monetary risk - this is limitation, indispensable and voluntary. Hedging is a method of adjusting monetary risk based on the development of a compensating monetary position, in which there is a selective or absolute compensation of the 1st monetary risk with another suitable risk. The restriction is a method of adjusting the cash position, based on the indispensable or voluntary limitation of the bank's open cash position in accordance with the established limits.
Hedging instruments are used by banks to adjust the values of open cash positions with the aim of completely closing them, reducing them, or carrying out these transactions with foreign hard currency that will not lead to an upcoming increase in the values of the cash position for a predetermined hard currency or group of currencies. The following instruments are considered to be hedging instruments of the bank's open cash positions: decision different types balancing immediate and cash transactions for the purchase and sale of hard currency; premature refusal to perform, extension of an earlier concluded transaction; solving transactions similar to "swap", as well as conducting transactions that are not associated with the exchange of one foreign currency for another; offset of existing claims and obligations with one counterparty for the greatest reduction in monetary transactions by their consolidation.
The restriction, in contrast to hedging, is used both by banks, but also by the bodies exercising control and consists in a voluntary, on the part of the bank, or an indispensable, prescribed by the body exercising control, limiting the amount of the bank's open cash positions in accordance with the established limits.
Among the more fundamental features of the quality of the process of managing the monetary position at the bank level are: the efficiency and sophistication of banking information systems; skill, knowledge, professionalism and interest of management and staff. This process must be supported by adequate banking technology and rely on a correct, reliable accounting system in a credit institution.
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Refers to the amount of actual cash that a given corporation, bank or other entity have in his possession at a particular point in time. Generally, this includes the actual cash or accounts that are held by the company. It may also include other assets that are easily converted into cash, called liquid assets, such as short-term bonds or certificates of deposits. This does not include assets that have a low degree of liquidity such as products, real estate, cars or other items that cannot be quickly and easily converted into cash.
While individuals may technically have a cash position equal to the amount of their liquid investment, the term is most commonly used in a business context. A company, for example, lists its cash position on its balance sheet and communicates that cash position to investors, creditors, or other interested parties. The bank must have a cash position as well.
In general, banks are required to have the minimum amount a set of available cash based on the amount of funds people have deposited in the bank. For example, if absolutely new bank opened and 100 individuals each deposited $10 US Dollars (USD), the cash position required by the bank would be based on $1,000 USD in deposited funds. The bank would thus be required to have USD for at least$1,000 in cash so that it would have money to pay each of those people if they all arrived to take their money out at the same time.
For corporations, on the other hand, determining how much cash to have can be tricky. In general, a company does not want to have too little cash on hand. Cash is required to grow the fund's business and make purchases of supplies and services necessary to run the business. Cash can also be a sign of solvency and stability within a company. Cash, however, generates a relatively low return on investment compared to other less liquid investments, and availability as such is too a large number Cash on hand can be a downside to a company.
Investors can look at cash positions various companies, determining whether to invest or not. If a company does not have what is considered an appropriate amount of cash, it may appear to be a weak investment. Achieving a proper balance in this way is important for an open joint stock company hoping to attract investors.
