Saturday, August 12, 2006

EOD processing

When trading online in the fast paced word of international finances, then the actual trading system is, needless to say, important as this is the direct interface towards the clients, and if the experience, not only in terms of the actual product offering, but also in terms of stability and availability is not living up to what can be expected of such a system, then the clients will simply take their money and go somewhere else.

A less obvious item is how the investment bank handles the EOD or End Of Day processing. The EOD process (I’ll just refer to this as the “EOD”) is, as the name indicates, all the stuff that goes on after the end of a trading day: clearing, settlement, netting, calculation of interests and fees and … the list goes on and on.

There are many requirements to the EOD and I will focus on two on them: speed and service disruption. Let us begin with the later. It may seem obvious, that the EOD, should not cause a disruption in the service and availability of the online trading capabilities of the clients. This, unfortunately, is far from the case. I’ve worked with a lot of major banks, and – believe it or not – most of them are actually “down” for a period of time during their EOD. It may only be a few minutes and it may be as much as several hours, but they never the less have to stop servicing their clients during this interval.

If we are talking Non-FX, and especially physical equities, the problem would not be so bad, as it would be possible to find a time during which, all the major markets were closed, notably after close of the US until the open of the Asian markets.

If, however, we are talking FX and a lot of the future exchanges, then the trading goes on around the clock, from Monday morning at 05:00 Sydney time until Friday afternoon at 17:00 New York time. If you are interested in the specifics then they are:

Open: Monday morning 05:00 Sydney.With northern wintertime this corresponds to: Sunday 19:00 Copenhagen (CET), 18:00 London, 18:00 UTC, 13:00 (1 pm) New York.With northern summertime this corresponds to: Sunday 21:00 Copenhagen, 20:00 London, 19:00 UTC, 15:00 (3 pm) New York.

Close: Friday afternoon 17:00 (5 pm) New York.With northern wintertime this corresponds to: Friday 23:00 Copenhagen, 22:00 London, 22:00 UTC, Saturday morning 09:00 Sydney.In the week with EU, but not US daylight saving this corresponds to: Friday 24:00 Copenhagen, 23:00 London, 22:00 UTC, Saturday morning 08:00 Sydney.With northern summertime this corresponds to: Friday 23:00 Copenhagen, 22:00 London, 21:00 UTC, Saturday morning 07:00 Sydney.

Who invented the concept of summer-/wintertime anyway …

As Saxo Banks main area of operation is FX, we have always been geared towards being open for business in the above time interval. Once a day we down load all positions from the Front Office Trading system till the Back Office system to do the aforementioned EOD. As the positions had been processed they were uploaded back to the FO Trading system to be available for the viewing of the clients. Apart from a locking the actual positions during the upload, if they are netted out, the client will not suffer at all and trading can continue. We used to perform the download/upload once a day. At around 02:00 CET we would download all positions, and upload them again once processed as just mentioned. This MO, however, will in fact delay the correct trading information to the clients in the Asian region for a trade day, as they are several hours ahead of us – living in the CET-time zone. Something had to be done …

This leads into the second (or first, depending on how you look at it) issue: speed. The processing of all the trades could take several hours. The original system had been devised when we did a few hundreds or maybe thousand trades a day. Now we do close to doing hundred thousand trades every day, and the number keeps going up.

To solve these problems (timely reporting of account statements and continued scalability of the system) we have introduces a new Middle Office system (I must immediately say that I in no way can take the credit for devising or constructing this system – that should rightfully go to my esteemed colleagues in the BO Systems group).

What is done is the following: every time a trade is registered in the FO system an “event” is send to the Middle Office system, hence a complete picture is keeps here of all client accounts. All BO operations is then carried out and the client is (almost) in real time able to see the correct and updated status of her account statement.
It may seem obvious that people/clients/institutions/banks wishing to participate in the global FX market can do so during its entire opening period, and that they, in real-time, should have access to on updated account statement. However, it turns out that this it no way obvious and unless the institution in question has thought good and hard about it, it may never happen.