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MiFID II Compliance Solution from Corvil

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The new stringent MiFID II regulatory technical standards (RTS) is top of mind for Banks, venues, and participants. One of the areas of major concern and confusion are the new regulatory technical standards (RTS) for trade transaction record management and reporting for trades made to venues that support high speed trading i.e., almost all electronic trades. The new MiFID II RTS standards require all parties involved in a trade to capture, record, maintain and report all information related to the transaction life-cycle with precise time-stamps accurately synchronised to the world time standard - UTC (Coordinated Universal Time). Existing systems cannot do this.

The reason the regulator wants to do this is to be able to retrospectively recreate the sequence of market actions that led to a particular market condition (possibly abusive behaviour) and forensically verify who did what, how markets reacted, and who is to blame.
It is very difficult to meet these new MiFID II regulatory technical standards (RTS) and may cost many millions of dollars to replace or retrofit the existing trading systems with this new capability. In addition, they will incur the ongoing costs of remaining compliant amid changes in their technology and amid future regulatory requirements. The banks and venues are concerned that even if they spend this money, their implementations may not meet the requirements and intention of (MiFID II) the new regulations, and failure to be compliant may result in significant fines.

Corvil is introducing a novel new solution that addresses this problem - it is able to meet these new MIFID II requirements for UTC-synchronised trade transaction record management without requiring a retrofit or re-architecture of trading platform components.

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MiFID II Compliance Solution from Corvil

  1. 1. PAGE 1 Preparing for MiFID II / MiFIR The New Norm for Monitoring, Reporting & Surveillance Of Trade Execution
  2. 2. PAGE 2 Safeguarding The Trading Business “You can sleep much better at night knowing you have an independent watchdog system that sees everything. The scary situations are the events no one has imagined, and Corvil helps protect us from those.” – MD Global Investment Bank Corvil monitors 90% of the world’s lit algorithmic trades Messages per day Analyzed each day Microsecond synchronised data Transactions daily 10 of Top 10 global banks rely on Corvil 90% 227 50 10 170 10 10$ -6 Trillion BillionPetabytes In An Algorithmic Digital World
  3. 3. PAGE 3 Summary - The Corvil Proposition Making MiFID II Implementation Simpler, Faster, Cheaper UTC-SYNC TRADE EXECUTION DATA MiFID II Application (RTS-6,7,22,24,25,27,28) MiFID II DATA WAREHOUSE MiFID II REFERENCE DATA PTP, PPS Solution A streaming analytics platform for real-time monitoring, order record keeping, trade reconstruction and surveillance Benefits • Lowers regulatory tail-risk – independent trusted 3rd party solution • Minimizes changes to existing trading systems – an overlay platform approach • Zero / low overhead to execution performance – non- intrusive data capture & monitoring • Best-in-class data analytics platform for trade execution life- cycle paid by “tax” of MiFID II • Future-proofed data precision and accuracy for anticipated tightening of requirements GPS Real-Time Alerting & Forensics MiFID II REPORTING AUDIT RISK Client Orders Market TransactionTrade Execution Lifecycle Orders Data CORVIL STREAMING ANALYTICS PLATFORM real-time monitoring order-record keeping trade surveillance Cyber Threat Intelligence
  4. 4. PAGE 4 • RTS-6: Requires comprehensive real-time monitoring and surveillance systems for algorithmic trades • RTS-24: Requires precise record keeping of all messages and events involved in trade execution life-cycle • RTS-25: All “reportable events” ( ESMA/2015/1909 Section 3.1) need to be UTC synchronized with 1/100uS accuracy “or better” • Requires a new type of data i.e. machine-time data • Intention is to enable audit and forensic inspection of the sequence of trade events across all venues and members MiFID II Driving New Requirements For monitoring, order record keeping and transaction reporting • [1] ESMA Consultation Paper, “Guidelines on transaction reporting, reference data, order record keeping & clock synchronisation” - 23 December 2015 • [2] ESMA, “Regulatory technical and implementing standards – Annex I” - 27 September 2015
  5. 5. PAGE 5 “Notice there is a big, big focus on data quality. The information that needs to be submitted must be ACCURATE and COMPLETE. Those words were not present in MiFID I” Ana Fernandes, Technical Specialist, Transaction Monitoring Unit, FCA A New Norm of Data Quality Required Emphasis on data accuracy, completeness, and timeliness “The record of the precise date and time and of the details of any order placement, modification, cancellation, rejection and execution should be maintained. This allows monitoring the changes to the order throughout its lifetime, that can be significant in detecting and assessing potential market manipulation and front running behaviours.” RTS-24: Maintenance of relevant data relating to orders in financial instruments
  6. 6. PAGE 6 RTS-25 Article 4 • “Operators of trading venues and their members or participants shall establish a system of traceability to UTC. They shall be able to demonstrate traceability to UTC by documenting the system design, functioning and specifications. They shall be able to identify the exact point at which a timestamp is applied and demonstrate that the point within the system where the timestamp is applied remains consistent. Reviews of the compliance with this Regulation of the traceability system shall be conducted at least once a year. “ Clock Synchronization Requirements for timestamp and capture of RTS reportable events
  7. 7. PAGE 7 • Will need major upgrades to IT systems • Requires consideration of “intent” and “future” rules • PTP distribution network to every server for UTC sync • Server upgrades to support PTP input • Application code changes and/or software re-architecture • New database system to handle precision timestamps • Distributed data collection and normalisation system • Test and calibration system for UTC compliance (RTS25, Article 4) New Challenges For The Business Unquantified Cost, Complexity And Risk
  8. 8. PAGE 8 Understanding UTC Timestamping for RTS Reportable Events Host Machine Wire In Wire OutT1 T2 T3 T4 T5 UTC Time Source PTP Time Distribution Trigger Event Response Event Decision Event ! T1 < T2 < T3 < T4 < T5 Wire Timestamp Host Timestamp Application Timestamp • Reliable distribution of UTC • Re-architecting software / databases • Overhead of timestamping in host • Assuring causal sequence of events • Robust data collection system • Maintenance of system to spec Challenges e.g. SOR, OMS, EMS, Order Gateway
  9. 9. PAGE 9 The Corvil Approach UTC Time Synchronized Streaming Analytics Wire In Wire Out T1 T2 T3 T4 T5 UTC Time Source Trigger Event Response Event Application Agent CORVIL DATA STREAMS ETL CORVIL STREAMING ANALYTICS ENGINE TRADING DATA HUB e.g. Hadoop, Kdb+, SQL REFERENCE DATA PTP, PPS • Auto-discovers all trading sessions • Performs time-stamping, decode, extract, correlation, normalization and publishing • Maintains precision store of full execution life cycle for transaction – including mkt data • Single appliances scale to millions of events per second, and ingests from hundreds of network points. • Hardware ns timestamping - PTP and PPS, and alerting for synchronization outages • Normalizes and streams reportable data via an open API to big data store UTC Time Source
  10. 10. PAGE 10 Example - DEA Client-Venue Gateway Passive Wire-Data Analytics for Order Record Data Client Orders In Market Orders Out DEA Gateway Network Packets UTC Time Distribution Wire Data TAP Wire Data TAP t1 t2 Time DEA Transit Time *May require additional correlation data GPS Receiver RTS-6 Article 21 • “DEA providers shall record the relevant data relating to the orders submitted by their DEA clients, including modifications and cancellations, the alerts generated by their monitoring systems and the modifications made to their filtering process.”
  11. 11. PAGE 11 1 2 3 Nanosecond UTC Timestamps All Order Events Captured Full Decode Of Order Fields 1 2 3 Order Record Capture
  12. 12. PAGE 12 Real-Time Monitoring Anomaly Detection and Alerting Orders In Orders Out Client Gateway Network Packets UTC Time Distribution Wire Data TAP Wire Data TAP *May require additional correlation data GPS Receiver RTS-6 Article 16 • “Monitoring systems shall have real- time alerts to assist staff in identifying any unanticipated activities undertaken by an algorithm. Investment firms shall have a process in place to take remedial action as soon as possible after an alert is generated, including, as necessary, an orderly withdrawal from the market. These monitoring systems shall also provide alerts in relation to algorithms and DEA orders triggering circuit breakers of a trading venue. To SOR Programmable Real-Time Alerting
  13. 13. PAGE 13 1 2 3 Programmable Real-Time Alerts User Search On Any Fields Full Decode And Highlight Of Alert Event 1 2 3 Order Record Capture
  14. 14. PAGE 14 Instrumenting Trading Application Stacks NEW Corvil Application Agent Market Data In Orders Out Algorithmic Decision UTC Time Distribution Wire Data TAP Wire Data TAP t1 t2 Stac k & OS Time A1 A2 A3 W1 W2 A1 A2 A3W1 W2 t3 t4 t5 Stac k & OS Application Total Tick to Order Time Application Events A1 – Process Tick A2 – Decision to Trade A3 – Send Order GPS Application Agent • Ultra-low application overhead – API call • Accurate time-stamped events from within application • High Performance: Up to 200,000 events per second, per host. • Java & C/C++ Libraries • Forwarded to CNE for analytics integration and normalization • Suitable for OMS, EMS, SOR, and Matching Engine • “Decision to deal” • “Transaction time”
  15. 15. PAGE 15 Precision Forensic Traceability Of Reportable Event Life-Cycle • Edge to edge life cycle • Wire to App To Wire • Full context of event • Tracks trigger and response events • Alerts on negative latencies • Drill down to raw packet or event data
  16. 16. PAGE 16 DEMO DEA Order Tracking
  17. 17. PAGE 17 A New Norm For IT Systems Monitoring The Obligation Lies With The Investment Firm “Using a sufficiently detailed level of time granularity, the investment firms’ monitoring systems shall be able to read, replay and analyse order and transaction data on an ex-post basis, with sufficient capacity to be able to operate in an automated low-latency trading environment where relevant, and generate operable alerts.” “Staff members in charge of real-time monitoring shall respond to operational and regulatory issues in a timely manner, initiating remedial action where necessary.” “Investment firms shall set up and maintain appropriate arrangements for physical and electronic security that minimise the risks of attacks against their information systems.” RTS-6
  19. 19. PAGE 19 Future Proofed nS Precision UTC-synchronized Hardware Time-stamps Independent, Non-intrusive, Comprehensive (auto-discover) Ultra-low-overhead software library Simple to Implement Dedicated System For Data Discovery, Collection, Monitoring & Publishing Network Events Benefits Of Corvil Approach Application/Log Events Overlay avoids costly changes to existing IT systems & Available NOW
  20. 20. PAGE 20 Build vs Buy In-house development OR One-off Purchase “How long will it take to build?” ”How much will it cost?” “What’s the risk in upgrading our critical systems?” “Can we buy a solution off the shelf more economically?”
  21. 21. PAGE 21 Business Dashboards (Continued) Why Corvil? • A trusted 3rd party • Corvil is viewed as the trusted independent third party provider of transparency and forensic machine-time data to the trading industry • Corvil will not only enable you to meet the reportable events compliance obligations but has the data accuracy and context to defend a forensic audit • Lower total cost • Corvil total cost of ownership has consistently proven to be 50%+ lower than implementations successfully operationalized in-house • People often significantly underestimate the cost to maintain and evolve • Reduced complexity and time • Corvil solution is unique in terms of ability to “plug-in” and “go live” • Minimum disruption to existing trade plant and software systems
  22. 22. PAGE 22 Next Steps?
  23. 23. PAGE 23 Thank You