1. The Future of Risk Controls
EXTENT Trading Technology Trends and Quality Assurance
EXTENT Conference
April 14, 2012, Kostroma, Russia

2. Brokerage System

3. Brokerage System

4. Naked Sponsored Access

6. Access Procedures
Financial Controls to prevent:
o Orders that exceed appropriate pre-set credit or capital thresholds
o Orders that exceed appropriate price or size parameters
Regulatory Controls:
o Prevent entry of orders unless there has been compliance with all
regulatory requirements
o Restrict a person’s access to only those market-access systems
and technologies that are pre-approved by the brokers
o Provide surveillance system of the brokers with immediate post-
trade execution reports

7. Risk Control Module

8. Implementation options:
• Hardware implementation:
 Firewalls
 Microcontrollers
 FPGA vs. ASIC
• Software implementation:
 A program integrated into OS

9. FIREWALLS
Types of traffic:
 Packets
 Connections
 State
Technologies in Firewalls:
Packet filtering
Proxy firewall
Stateful packet filtering (Dynamic Filtering)
Dynamic Filtering:
The best combination of performance and security
ACL (Access Control List)
A state table

10. Microcontroller
• central processing unit - ranging from small and simple 4-bit processors
to complex 32- or 64-bit processors
• volatile memory (RAM) for data storage
• ROM, EPROM, EEPROM or Flash memory for program and operating
parameter storage
• discrete input and output bits, allowing control or detection of the logic
state of an individual package pin
• serial input/output such as serial ports (UARTs)
• other serial communications interfaces like I²C, Serial Peripheral
Interface and Controller Area Network for system interconnect
• peripherals such as timers, event counters, PWM generators, and
watchdog
• A clock generator - often an oscillator for a quartz timing crystal, a
resonator or RC circuit
• A lot of microcontrollers include analog-to-digital converters, some
include digital-to-analog converters
• in-circuit programming and debugging support

11. FPGA vs. ASIC
(FPGA) Field-programmable gate array
 Configurable by customer.
 Reprogrammed as many times as customer needed.
 High performance.
 High costs.
(ASIC) Application-specific integrated circuit
o Configurable by customer.
o Non possible to reprogram.
o The performance higher than FPGA.
o The cost lower than FPGA with large amounts.

12. Non-physical implementation. Only a program
integrated into Client workstation
Low costs
Simple installation
Acceptable speed performance for most tasks
Mobility and speed when requirements change

13. Pricing module
Goal: to provide correct parameters to the risk
control
Risk exposure of portfolio
o e.g. options delta calculation
Pricing threshold
o Parameters for pricing threshold calculation
To make it fast:
o Delegate complicated calculations to GPU

14. Concurrent Computing in GPU
Portfolio: Parallel pricing for several options
Monte-Carlo simulation: Parallel simulation of several paths
Delta: Parallel pricing with different market rates
Pricing
Ma
rk e
tR
at e
s
Portfolio revaluation
New Order
Risk exposure
o
tfoli
Por

15. Example: SABR model for American options
(Monte-Carlo simulation)
SABR – Stochastic Alpha, Beta, Rho
o Stochastic volatility model with three parameters – alpha, beta, rho
o Price and volatility evolution based on 2 correlated Wiener processes
o The model can be calibrated to suit the market data
American options – early exercise
Monte-Carlo Simulation – average random walk
Early exercise requires additional computation
o Solution of a system of linear equations
o No parallelizing  Gauss method ~ O(n3)
o Parallelizing  n multiplications and a number of additions

16. Thank you!
Questions?