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mikeohara's Blog

The Evolution of Customised Pricing

January 26, 2015 by mikeohara   Comments (0)

By Eddie McDaid

One business area that is becoming increasingly challenging for banks operating single-dealer platforms (SDPs) in the FX and Money Market space, is that of customised pricing. Banks continue to grapple with the problem of offering tailored prices to specific customers under specific circumstances.  The challenge of doing this increases considerably as customer numbers rise and as speed becomes ever more important.
 
In days of old, when SDPs were first used by banks to offer trading applications over the internet to their external customers, banks would just deliver the same prices out to every customer using the platform, or at best segment their customers into very broad groupings. But with the markets becoming more and more competitive in recent years, that approach is no longer viable. Banks now seek to offer various levels of tailored pricing to their customers in order to differentiate their services and stay ahead of the competition.
 
However, the technology behind the SDP can be either a limiting factor or an enabling factor in this regard. 
 
A traditional – but somewhat limited – approach would be to have a namespace of topics and queues, which an application would be configured to connect to in order to exchange data. But in this scenario, if the bank wants to give a customer a different set of prices, the application session would need to switch to different topics and queues, which means that you've got a very ‘chatty’ conversation going on between the end client and the backend delivery. It also means that you run the risk of having pauses in delivery as customers are switched from one set of prices to another. Or you might have two streams of prices coming in at the same time while waiting for the switch to happen. Not good.
 
The next evolution would be to control subscriptions from the backend, within the messaging system itself. This is something that we introduced with our Universal Messaging DataGroups functionality back in 2011. This provided a fully transparent event delivery construct, similar to a topic or queue but based on arbitrary groups of application consumers where group membership is controlled on the backend without any change to client state occurring as users are added to or removed from specific groups. Since then we have seen many banks adopt this approach in order to deliver customised pricing via their SDPs.
 
We are now taking this concept to the next level by bringing together the concepts of messaging and streaming analytics and we are already seeing great results with various banks piloting the technique using Software AG’s new Streaming Analytics platform, which combines our APAMA Complex Event Processing (CEP) and Universal Messaging (UM) offerings. 
 
Price distribution systems often utilise CEP technology to help generate prices based on the execution of business logic against fast moving streams of data.   By adding a new level of logic into the CEP we can now decide, in-process, who should receive individual prices at the point in time that the price is created.  The CEP thus becomes the orchestrator of price delivery and the consuming application no longer requires any logic to handle changes to the price streams it is receiving.
 
By using this technology, it is now possible to build a wide range of heuristics into the pricing layer itself. That layer knows who is connected, how much trading they’re doing and what their risk profile is, as well as a wide range of other factors, all of which are combined to determine - as a generated process – which prices should be sent to which customer, in a secure and controlled manner.  We utilise low-latency streaming analytics to gain these real-time insights into the behaviour of the instruments being priced and then we combine this with external factors such as overall market behaviour, volatility of the underlying instrument (when used for derivatives or internal hedging).  Our customers can then skew these prices (spreads) for individual customers – allowing each end-point to be treated as a "segment of 1" but also to easily group them (and un-group them in real time).  With Universal Messaging this is transparent for the end customers, and by automating the pricing and skewing aspects we ensure that real-time price delivery is as efficient as possible. 
 
The APAMA streaming analytics engine becomes the home for both pricing and delivery logic including the aggregation and segmentation of prices direct from ECNs.  The Universal Messaging layer takes care of combining that pricing logic with the delivery capability out to end clients, regardless of what device they may be using: smartphone, tablet or desktop. 
 
This server-controlled approach is far more secure than having clients jump between different messaging namespace resources, where there is always a danger that information might be leaked to clients about which pricing group they are in, for example. 
 
All completely non-intrusive to the client. And all totally dynamic in nature. 


Eddie McDaid
is SVP, Product Management & Strategy, Streaming Analytics & Big Data at Software AG

 

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The future of TCA for the buy-side: The quest for the Holy Grail

January 22, 2015 by mikeohara   Comments (0)

Transaction cost analysis (TCA) has become increasingly important to help firms measure performance and cost of execution. What are the ingredients for a good TCA and is there a Holy Grail?

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Fixing fixed income: taking a leaf out of social mediaâs playbook

December 12, 2014 by mikeohara   Comments (0)


In this article, Mike O’Hara, publisher of The Trading Mesh, talks to Paul Reynolds of Bondcube, Peter Fredriksson of Baymarkets, Stu Taylor of Algomi and Andrew Bowley of Nomura to discuss ways the financial industry can work with the buy side to address some of the structural problems that have led to chronic illiquidity in the fixed income market. Also, from the buy-side perspective, Gianluca Minieri of Pioneer Investments spoke with Mike about the issues buy-side firms face in today’s market.

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The gift that keeps on giving

November 25, 2014 by mikeohara   Comments (0)

This article was originally published at the Fidessa blog, and is reproduced here with permission.
 
By Steve Grob

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Fixed Income Robot Wars & the Rise of the Machines

November 18, 2014 by mikeohara   Comments (0)

Continuing global regulatory reform, is leading to significant change in financial markets across all asset classes. Change causes disruption and disruption presents opportunity with winners and losers.

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Factoring Capital Adequacy into FX Liquidity Provision

November 4, 2014 by mikeohara   Comments (0)

Continuing on the theme of my previous blog post, which looked at how firms are starting to use in-memory data management technology to perform complex calculations on large data sets ‘on the fly’ – such as real-time credit valuation adjustments (CVA) and pre-trade capital adequacy calculations – let’s now take a look at how banks can use this ability to their advantage in the FX markets.

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Banking, Bitcoin & Innovation: Time to remove the Catch 22

November 4, 2014 by mikeohara   Comments (0)

“Bitcoin is better than currency in that you don’t have to be physically in the same place,” so said Bill Gates, the richest man in the world at Sibos, the conference dedicated to the financial services industry.  This year’s event had a surprising number of speakers on the subject of virtual currencies, considering the reputation that cryptocurrencies have as disrupters of the banking industry.

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