Sergey Polyakov, Managing Director of the Moscow Exchange for Information Technologies, tells the NAUFOR (National Association of Stock Market Participants) reporter Irina Slyusareva about how a unified IT architecture works, what the price of proactive risk management can be and why it can be sometimes faster than buying ready-made .

"CONSTRUCTION INTEGRATION".

The idea of ​​architectural transformation in the creation of structures, which allows you to grow and develop in all situations

- Sergey, at the Moscow Stock Exchange you are responsible for creating and developing a single technology platform for all markets. Can you tell about it in more detail? How will the platform evolve?

- Today, three large trading floors of the Moscow Exchange - the stock, derivatives and foreign exchange markets - are based on two technological platforms.
The ASTS platform is a system developed based on NASDAQ technology, which was originally built by MICEX technologists. It trades stocks, bonds, currency, precious metals, money market works. The second system came to us from the RTS and is called SPECTRA, on it - the derivatives market.
There is an opinion that a single MOEX IT platform is the result of a process in which either one trading system replaces the other, or we throw both away, and a third appears immediately. The question really is not worth it in principle. Complete replacement of highly specialized trading systems that take into account the characteristics of specific markets with one completely new and very large one is not the right way. In the process of such a substitution would have to recreate all the business logic, all the knowledge accumulated in the application systems for many years. Such a process can go more than one year and usually ends in failure. It is unprofitable, unreasonable, dangerous.
The integration of platforms will occur, but not at all in the form in which it is thought that the integration of functionality will take place, that is, we will focus our technology not on the axes of the markets, but on the main functional areas, such as trading, clearing, risk.
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- And in what form will the platforms unite then? Maybe we will discuss the technological path: on the example of a specific platform, a specific technological unit, or, as you call it, zones?

- Once again, I will say that the main complexity of application integration lies not in the technologies as such, but in different business processes. Markets are arranged differently - by categories of participants, requirements for them, by the type of their business. Combining all this at the level of technology is meaningless until the business models in the functional areas of which we spoke are unified.
Where business processes are similar, the task is simple. For example, bidding is a bidding process that is about the same in all markets using a counter-continuous auction. Here it is easiest to create or buy a single technology, but this, however, is not urgently needed - the existing trading functionality works well. The complex and interesting begins in the part of the system that is responsible for clearing and calculating risks. It is in the clearing that the differences in business models of different markets are manifested - different types of participants, articulation of asset types, different rules of margining and collateral, features of accounting and calculations. Accordingly, the integration of clearing technologies should go along with the harmonization of business processes, and this is exactly what is happening now.
For example, a large project is now being implemented on the Moscow Stock Exchange to normalize risk management as a business function. The IT department, in turn, is preparing a technological base that creates the required nature of interaction between systems, which is built on the principles of integration. At the same time, modern architectural and engineering solutions are used, creating a parallel information structure that takes on many non-trading functions that are now implemented directly in trading systems. The latter at the same time unload and become more reliable and productive in its main function. For example, a separate trading module of the foreign exchange market was recently tested. The current system is capable of processing 20 thousand transactions per second (now 8-12 thousand transactions are at the peak), the new module showed the performance of 40 thousand transactions per second. The same work is being done in other markets.

- Roughly speaking, are you building a parallel spine?

“We are creating a modular information architecture in which, in fact, there are two“ spines ”: high-speed — for trade operations and more functionally rich, but slower — for everything else. Around these spines (we call them tires) we will accommodate functional modules: a separate risk calculation module, a clearing module and a trading module are created. After that, depending on how the business process is organized, it will be possible to connect the modules one to another according to different schemes and in different combinations. This is the meaning of our transformations. There is no replacement of one system with another, but a set of ready-made modules is being made, from which we will create what the business needs.
If we talk about tires and spines, then an important thing in the process of technological transformation is a unifying platform, and it is here that our efforts are focused. It is customary to think of an exchange as a business, where all processes operate in hard real-time mode, where the account goes for microseconds (we process a transaction in 350 millionths of a second). We transfer such processes to a technology platform based on the IBM LLM ultra-high-speed bus. But not all processes require such speed. Very much - the same clearing, calculations, collateral management - can be done in the "human" time mode, say, focusing on tenths of a second.
Accordingly, we are building a new layer of the unifying technology -Data Grid and Enterprise System Bus. Data Grid allows you to consolidate information generated in many trading systems in one place, where it becomes available with a delay of one hundredth of a second, for later use in risk calculations, clearing, and so on. The Enterprise System Bus allows you to manage distributed transactions in several independent systems.
The new information architecture will allow creating new services and applications fairly quickly without mass deletion of the old elements (of course, we will later replace something as the specific replacement becomes necessary). This is a completely new approach for the exchange.
Over the past year, we have built many of the components of the new unifying platform, to which we are now starting to translate existing applications, as well as build new ones.
Trading systems of the currency and derivatives markets with separate modules will be commissioned in November, and all work will be completed before the end of 2016.

- Do I understand correctly that the issue of adapting the system to the environment, its development is already laid in the ideology of construction?

- Yes exactly.

- And then what will happen?

- New tasks appear all the time, including from such important customers as the Ministry of Finance and the Bank of Russia. For example, recently launched such complex products as currency repo, as well as OFZ with indexed par value. Our financial market is developing, and new urgent tasks are constantly arising. Their implementation basically requires changes in the clearing functionality.
Today, clearing functionality is part of trading and clearing systems. After the transformation of the IT architecture we are talking about and the separation of the clearing from the trading system, new products can be implemented more quickly and with less risk for the stability of the entire system.

- How are the main economic parameters identified in which you can carry out your impressive plans?

- It is planned that, in general, our expenses for the maintenance and development of the IT infrastructure for the next three years will amount to 6.4 billion rubles. We use these tools very carefully. There was a thought about buying a huge western system, as a replacement for the whole existing one. However, it quickly became clear that such a system did not correspond to our exchange business processes, that the cost of bringing it in line with the requirements of our market would exceed the purchase price. But the most important thing is that the purchase of a new system will solve only one current problem and will not solve the problems of further development. The idea of ​​an architectural, rather than an applied, transformation is that you create a structure that allows you to grow and develop even in situations where you still have no idea in which direction you will have to move.
The task of an IT strategist is to understand what requirements exist today, roughly represent the extent to which requirements change ten years ahead, and predict what type of technological design it will need in order to be able to live on it for the next 10-20 years. My task is to create a sustainable, change-friendly technological architecture, rather than buying a modern Western system and finishing it in accordance with our current specific requirements. This, including, is a financially more efficient solution.

- If the Moscow Exchange is so complicated, how does it work in the West: do they give a license to the participants, and then everyone trades as they please, in accordance with their own risk assessments?

- At foreign sites, as a rule, participants are provided with a trading limit. No one can and does not try to check whether it corresponds to the actual value in real time, and sometimes it is simply structurally impossible, such as in New York, where the clearing organization is DTCC or OCC, which are not organizationally related to exchanges. The situation is similar in London, even though LCH has become part of the LSE. On these exchanges, the function of preliminary risk assessment is performed by brokers, which is quite reliable, considering the size and credit quality of the participants on these exchanges. There are more “clever” exchanges. For example, Deutsche Borse reduces the orders and immediately after the transaction checks whether it complies with the risk value acceptable for the client. If not, the exchange of these clients "cuts off", but this happens after the transaction.
In Russia, the size of the brokerage business is substantially smaller, and therefore the Moscow Exchange takes over the risk assessment function. In fact, we are the only stock exchange in the world that makes a risk assessment of each order in real time.

- What does this mean for an IT system?

- On the Moscow Stock Exchange, on average, 6-10 thousand orders per second fall on the trading floor. This means that before getting into the matching module, the application must go to the clearing / risk module, undergo a check for compliance with the security and margining of the participant. This is called proactive risk management, and this check is substantially more complex than the match itself. As you remember, the risk / clearing module is much more complicated than the application convergence module, and there are constantly changes in it — new products and services are being introduced. Therefore, the causes of various problems are always in the risk and clearing module, and not in the trading module. There is no such problem on a typical western exchange - only matching is present there.
If at the Moscow stock exchange we only reduced the bids, as it happens in New York, then I suppose that we would not have had a single suspension in the past two years. This is a payment for the extraordinary quality of our risk management process. When I tell colleagues from other sites that we are doing this, their mouth just opens in amazement.
Nine out of ten of our changes and innovations occur in the clearing module, which should work out and check the risk of each order thousands of times per second.
In the new architecture, we plan to separate the trading and clearing modules and establish an autonomous trading mode, at which we will check risk applications using limits, let’s assume two minutes, which will give us the opportunity to reload the clearing module if necessary without pausing the trading.

- How did the development of algo trading affect the exchange technologies? Where does MOEX trading robots come from? In which markets are they most active and what problems do they create?

- Algotrading as a client trading technique and technology has existed for ten years. The IT systems that Moscow Exchange uses were originally written for the execution speed and level of service required for algorithmic trading. The main task of the exchange in the support of algorithmic trading. This is not speed, but maintaining a balance between speed and control. Most algorithms need a direct connection to the market, technologically bypassing the broker, who, however, is responsible for all their transactions. Therefore, a broker who supports (“sponsors”) the direct access of the algorithmists to the market should be able to control their operations. This requires a specialized technology - sponsored access - which we are now rebuilding.
Incidentally, this is another component of the new platform - the development of services specifically for brokers, when they can better monitor the operations of algorithmic traders that they sponsored for direct access to the exchange.
Returning to algorithmic traders, it should be understood that an algorithmic trader and a high-frequency trader are not necessarily the same thing. For high-frequency traders, the strategy is based on the fastest possible execution of operations - grasp the opportunity that will live on the market, let’s say, within a millisecond. There are algorithmic traders implementing medium frequency strategies. They earn on macrotrends, for them the maximum speed of execution is not important. There is a third kind of player who doesn’t try to extract alpha from the market at all. They simply seek to automate the processes of execution of orders for the purchase / sale. Suppose such a broker has a large order from the client, he does not want to immediately put the entire bid to the market so as not to bring down the prices. Then he sets up a robot that plays back operations in a certain algorithm, and he does not look for a strike price that would be better than the market as a whole.
Different algorithms influence the exchange system in different ways, because some of them, in principle, are a substitute for people, others try to be technical analysts, and still others simply try to trade and earn money very quickly. The share of algorithmic traders on the stock exchange markets is about 50% of the trading volume.

- What are the main problems arising in the interaction of MOEX systems and market participants? Is there any difference when interacting with Russian and foreign brokers?

- The difference is rather between large and small brokers, simply because the level of infrastructure that they can afford, the level of automation and manufacturability, varies greatly. I can not say that a large Russian broker is somewhat inferior to a large foreign broker in terms of the quality of the technologies used, in the level of support and interaction with the trading platform.

- Thus, we smoothly proceed to the next question. Is there a technological lag in our market?

- There is no technological lag in the Russian stock market at all. If there is some kind of stratification, then it, as already mentioned, occurs according to the size of the business. The difference is in how this market is equipped.
A typical western broker ecosystem is equipped as follows. There are a certain number of brokers who perform clearing functions, order fulfillment functions, marketing services, and work with clients. Other brokers assume only one specialized function - execution of applications (Executing Broker). Another category of brokers believes that building the fastest access technology to the stock exchange is expensive, but they know how to work well with customers (Introducing Broker). Therefore, they will not bother to build a clearing structure, to invest in very expensive execution technologies. Their main skill is to find a buyer.
We do not have such a stratification, so there are a lot of brokers who deal with different sizes and possibilities, and those, and others, and the third. Some have excellent risk management, they have their own systems, a well-built infrastructure, and there is no difference between them and Western brokers. Smaller brokers are more dependent on the services provided by the exchange. And this is the peculiarity of the Russian market.

- Can the ECN experience be used on the Russian market? Can, for example, a trade format arise when people simply reduce bids and attract customers to the trading platform under this?

- In the Russian context, with a relatively low capitalization of brokers who are agents of the business, a trading platform that simply concludes transactions will lead to a collapse - either to one’s own or someone else’s. About this speech can not be. We have to take care of both the risk and the security of clearing.
If we leave clearing aside, then formally ECN differs from the exchange in that there is no listing. What is the listing for? For example, you want 10 million people to invest their money not in real estate, but to buy your company. The listing procedure gives the investor confidence that your company is under reliable management, it has modern accounting, everything is transparent and it is safe to invest money there. In the West, the culture of investing in foreign businesses has existed for a long time. The listing on the stock exchange tells the investor that many factors have been tested, which makes investing money in someone else's business more attractive.
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