With the release of Eurex's Enhanced Risk Solution last monday, members of the exchange can now receive information on their risk positions that is updated continually, whenever the price of the contract changes.
Eurex has been calculating this data internally since June, when it migrated its internal risk monitoring to a real time system infrastructure. But the exchange is only now offering the information to customers, as part of its annual software upgrade, this year known as Eurex Release 12.
The Enhanced Risk Solution service is a free and optional add-on – but even if customers do not use it, Eurex will calculate margin in real time.
Thomas Book, the member of the Eurex executive board responsible for clearing, said it was a “continuous calculation based on price and position changes” but that it was “not about microseconds”.
As the exchange had just started to roll out the product, Book expected “the pick-up[in usage] to come over the coming months”.
Firms will have to have suitable technology to facilitate the inflow of data.
Book said introducing the solution was part of a “response to industry trend” and that it was “part of our broader offering of tools”.
Before this week, Eurex clearing firms received an update on their risk positions every 10 minutes. The new solution will calculate risk on an event-driven basis — any price change in a derivative position will trigger a new calculation.
Clearing members can set different alert levels and limits, and have a ‘stop’ button they can use to block all further trading by their firm.
This means the system could be useful for trading firms as well as clearing firms, as trading firms will be able to use it to limit their maximum exposure.
Ahead of the pack
“It’s better to have data as real time as possible,” said Chris Lee, global head of market access and electronic brokerage at Fortis in London. “I think Eurex are striding in the right direction,” he added. “Eurex have made fairly significant leaps in the last few years… Other exchanges could take a leaf from their book.”
The new system uses Advanced Message Queuing Protocol, an open protocol devised in recent years by a working group that includes Deutsche Börse. It sends messages in Fix ML format. The use of these standard protocols means the system should be able to interact with any proprietary or commercial risk management systems.
One of the first companies to offer a real time clearing solution was Cinnober Financial Technology, the Swedish software firm. It released its Tradexpress Real Time Clearing system in April 2009, and won its first customer for the product in February this year.
The idea driving Cinnober is that while trading software has become very fast and offers extremely high performance, clearing systems have been left behind with much slower technology that in many cases updates risk positions only daily. Yet the modern derivatives market, with high frequency trading, contains many firms that need to monitor their risk exposures as fast as they are creating them.
Nils-Robert Persson, executive chairman of Cinnober, told FOW: “Eurex is a very clever organisation — it really sees clearing as a business idea and realises how important it is. I am absolutely sure that you will see such solutions from other exchanges in the next two to three years.”
He added: “When regulators start to be very interested in clearing, then it will be more important to have good technology.”
Sian Williams +44 207 779 8370 swilliams@fow.com