aes university - very final

7/28/2019 AES University - Very Final

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Saving Market Integrity &Lessons From The World of

Motorsports

Murat Atamer

AES Product, Asia Pacific

Movember 2012

AES University Hong Kong


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2

The Starting GridRacing & The Evolution of Trading

DONATIONS WELCOME

http://hk.movember.com/?home

Lessons from the World of Motorsports

A Premonition

The Unpleasant Wake Up Call

Trading vs. Racing

Why Safety is Crucial in Asia

AES Advanced Order Protection


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April 30th 1994: Duringqualifying session, therookie, Roland

Ratzenberger crashesat Villeneuve Corner

due to front wing failure

April 29th 1994: DuringFriday Practice, RubensBarichello flies of thetrack and crashes at

Variente Bassa

Lessons from the World of MotorsportsSan Marino Grand Prix at Imola (1994)

Source: wikipedia

May 1st 1994: Onseventh lap whileleading the race, threetime World Champion

and arguably the mosttalented F1 driver everlived, Ayrton Senna,

crashes at Tamburello

Variente Bassa

Tamburello

Villeneuve

Tosa

Piratella

Acque Minerale

Variente Alta

RivazzaIMOLA


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The Flash Crash for MotorsportsThe Aftermath

IMOLA (BEFORE) IMOLA (AFTER)

Source: wikipedia


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A PremonitionRegulators saw it coming, but it was too late

Time

Speed

2005: US

Reg

NMS II

Asia

Tick Size Declines

Aug 2007: Quant Crashand the dawn of HFT

Feb 2009: IOSCO Consultation

May 2010Flash Crash

Mar 2012: BATS IPO Glitch, India SEBI Guide for Algo Trading

July 2010: US Single Stock Circuit Breakers

Aug 2010: Global

IOSCO Guides, Australia

ASIC Guides

Aug 2012Knightmare

2001: Decimalization

Oct 2012: Carnage in AsiaIndia: 14% Nifty dropAustralia: 6% large cap ramp ?

May 2012: FB IPO GlitchJuly 2012: US

Limit Up | Down Rules, Hong Kong

SFC Guides

Sources: Credit Suisse, IOSCO, ASIC. SEBI, SEC, SFC


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US Exchanges introduce single stock circuitbreakers

IOSCO finalizes its consultation on Aug 2010

The FPL Committee came up with its Risk Controls

Guide

European Securities and Market Authority (ESMA)publish their guidelines

In Asia, regulators on watch with some alreadypublishing their own guidelines

On May 6 2010, themarket in the USdropped 9% only to

recover in 10minutes

Flash Crash - thelargest single-daypoint decline in

history

The Wake Up Calland the Bucket of Ice Water


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92% of these erroneous orders would still gothrough with the upcoming limit up/down rules

in Feb 2013

The near-death trading error by Knight Capital - impacted 148securities for around twenty minutes

The US planning to add some new kinks in the track but

The Bucket of Ice Waterand the many more to come?


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ANZ spikes in Australia during auction | OCT 18, 2012 Nifty names drop 5-20% in India | OCT 5, 2012

Carnage in AsiaThe Nifty Fifty and The ANZ


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US volumes increased

but at a tremendous cost

High Frequency TradingWhere Are We Headed? The Speed Game

Sources: Credit Suisse, NANEX

50 ms

1 ms

1 ms= 300 km

1 ms= 300 km

2/52

=

4%

1 ms= 300 km

1 ms= 300 km

2/3

=

66%

4% at 6 km


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In racing every second countsIn trading every fill countsThe Trader

Anatomy of TradingSimilarities with Motorsports

Algo Parameters

AES Coverage Desk

The AlgoThe Market

Source: wikipedia


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Advanced Order Protection

and Why Safety is Crucial in Asia


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One way to move ahead

Fatal Crashes: Massive bid-ask spreads errors can lead tosubstantial losses

Night Races!Our Dark Pool, Crossfinder , broke USD 800 mn/ day in 2012Few Overtaking Opportunities: Liquidity 1/10th of the USCrossfinder : The Hidden Fuel TankProportionally executes more mid-small caps to reduce market impact!

Asian Market StructureA Very Tough Track

Source: CS AES Analysis, Reuters


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Guarded by Advanced Order ProtectionTrade with Confidence


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Advanced Order ProtectionCircuit Breakers

Source: Credit Suisse AES Analysis

AES Receivesthe Order

Order Gets PausedAES Desk Calls You

5%

More Pit Stops

Protects Against?The Flash Crash

The KnightmareIndia Nifty Crash

Australia Auction Crash


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Advanced Order ProtectionAES

Fair Value


Do not buy into atemporary spike

Do not fall behind on apermanent spike

Price AES Fair Value AES Fair Value Limit AES Complete Mode

Guerrilla 2012 Goes toComplete Mode

Traction Control

Protects Against?India Nifty Crash

Temporary Price MovementsServes as DMA Circuit Breakers


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Advanced Order ProtectionAES

Ticket Validation


Impact by orders that will try to completeLimit Price: More than 3% away or none

Max%: Greater than 50% or no max

11:00 AM 11:35 AM

Allowed Volume at Order Entry=

Average Period Volume x 2

Volume Curve

False Start Prevention

Protects Against?The Flash Crash

The KnightmareIndia Nifty Crash


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Advanced Order ProtectionMarket Impact Checks


400

800

0

1,000

600

Real-time order book for a DMA buy orderwith a wide limit price or no limit instruction

100.00

100.50

101.00

101.50

102.00

Ask Price Shares

All DMA orders over 0.5% ADVget screened

No impact over 2% and 2 ticks!

MAX Allowed DMA Order Size:400+800+0+1,000+600 = 2,800(based on 2%)

Car Parachute

Protects Against?India Nifty Crash

Countless mini-crashes averted across APAC


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If everything seems under control,

you are not fast enough

The Finish LineSmarter Faster Cheaper, and Now SAFER

More crashes coming?

Regulators dilemma

Strict market-widechanges can bedetrimental

Brokers haveflexibilitybutexchanges are key

AES: Smarter, faster,cheaperand nowSAFER


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The Finish LineQ&A

Any Questions?


20/20
http://www.csfb.com/researchandanalytics

aes university - very final

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