Rice Stock Market Simulator

COMP 415 Final Presentation

RICE

What is “Real World” Software Engineering?• Real projects require real structure and strategy• Hierarchical team structure• Division of labor• Planning, specifications, and documentation

How does consulting work?

• Receive project requirements• Develop specifications• Verify specifications with customer• Develop prototypes• Provide demonstrations

Regular customer interaction is necessary

Technologies Involved

• Microsoft Visual Studio 2005 Team Suite Edition– C# .NET 2.0– ASP.NET 2.0

• Microsoft Windows Server 2003

• Microsoft SQL Server 2005• Microsoft Team Foundation

Server

• Microsoft Sharepoint• FIX 4.2

– QuickFIX open source implementation

• Log4Net

Industry Customer HBK Investments

Customer Representative: Matt Jeanes, Rice ‘06

Who is HBK?

HBK is an investment management firm:• Employing approximately 325 individuals around the

world• Based in Dallas, TX with branches in New York,

London, Tokyo and Hong Kong

Established October, 1991• $13B in capital under management• Ranked in the top tier of large, successful hedge

funds• Generated a compounded annual return of 14.68%

since inception to June 2006

What is a Hedge Fund?• Similar to mutual funds…

- Run by an investment management firm (“fund manager”)

- Investors “pool” their money together into one “fund”

- The fund manager invests the money based on one or more strategies

• …with some key differences- Can invest in broader range of strategies and

financial instruments (e.g., short selling, derivatives)

- Limited in the number and types of investors that can invest

• HBK pursues a multi-strategy trading approach

What comes to mind when you think about working for a financial firm?• This…?

What comes to mind when you think about working for a financial firm?• Or this…?

22% of HBK’s personnel work in technology!

Management Committee5%

Front Office (Trading, Quant Research etc)

35%

Technology22%

Legal & Compliance, Audit, Risk etc.6%

Admin, HR & Recruiting8%

Operations & Accounting24%

Why does a hedge fund need all these technical folks?

Software Development

• Decision support tools for trading, risk management, portfolio analysis, accounting, etc.

• Computationally intensive

• Very low error and downtime tolerance

Datafeeds & Databases

• Multi-TB databases

• Millions of updates every day from hundreds of sources around the world

• Tools for cleaning, monitoring, management, and reconciliation

Information Technology

• Design, build, deploy, and manage global network, server, and workstation infrastructure

• Work with users to improve productivity

• Automate systems management tasks

Quick Facts…

• We have more servers than we do staff!• Our total data capacity is approx 40 terabytes with

usage growing at around 10 gigabytes per day.• Our databases maintain around 156 million historical

prices from over 26,000 issuers. • Our systems programmatically price over 170,000

options each day.• Real time prices require DS3 (45Mbps)

Our Technology “Toolkit”

• Most of our systems and tools are Intranet-aware- ASP.NET 2.0 , IIS

• Applications- Visual Studio 2005, C++, C#, .Net Framework

• Infrastructure- Service-oriented architecture, Web Services, XML / XSLT

• Database- SQL Server 2000 (replicated and clustered), DTS

• Operating Systems- Windows XP, Windows Server 2003

• 3rd party tools and technologies

Technology Initiatives

• Two tiers -> n-tiers• Direct market access• Better user experience – C# GUIs for trading• Expanding data coverage and capability• Straight through processing• Cash management system• Personalization technology • Infrastructure improvements

- Gigabit networking, WAN optimization, Voice-over-IP

- Blade servers and Storage Area Networks (SANs)

How has the project evolved?

• Hedge Funds operate on the world’s stock exchange systems

• Testing trading strategies could be costly on the real market

• HBK looked to Rice’s COMP 415 class for an alternative

Introduction to Stock Exchanges• Exchanges themselves have very simple behavior

– Two actions• Buy (Bids)• Sell (Offers)

– Parameters• Symbol• Volume• Price

– Transactions occur when all three parameters of a bid and offer match

Introduction to the Rice Stock Market Simulator• Programmatically mimic market function as closely as

possible• Ability to “replay” historical market data• Store bid, order, and transaction data in a database• User interface for interacting with the market

HBK’s New Specifications

• Fill Participant– Controlled by an ASP.NET GUI

• Extend the functionality of the Human Participant– Implement dynamic button configuration

• FIX Protocol Communication

Fill Client

• What is a fill client?• What were the requirements?

– Configurable fill parameters• Size of a Fill (Full, Random, Integer)• Time between Fills (Random, in ms)

– Load parameters from configuration file– Change parameters on the fly from a GUI– Save the modified parameters to a file

Fill Client Behavior

• If an order enters the fill client system, it will be filled– Other clients may be acting on these orders– Generate partial fills after the desired delay for the

desired amount– When to place the next partial fill?

• Identical orders?– Market makes no distinction between orders for the

same stock symbol at the same price– But all identical orders must be filled eventually– So the fill client needs to make sure it doesn’t lose

any of them

Fill Client Algorithm

• Each new order generates one “unit” of demand from the fill client for the given stock at the given price– Two bids for the same stock at the same price ->

twice as many partial fills• Each partial fill has a “target order”

– The market does not guarantee that the partial fill will transact with its target order

– Fill client should add a “target order” back to the order queue when the associated partial fill is removed

Financial Information eXchange Gateway

• We want to realistically simulate a stock exchange• FIX: an industry standard communications protocol• FIX Gateway for any system to connect to RSMS

QuickFIX Engine

• Open source implementation of the FIX protocol• Several valuable features:

– Object oriented design– Logging– Error Checking– Message Checking

How are Orders managed for a client?• Listing of orders associated with each client• Quote Server interaction

– Transaction listener

Processing Node Structure

• Easy interface for increased functionality• Market Validation Rules

– Enhanced simulation of Market behavior– Retrieved from Market– Rules

• Tick Size• Lot Size• Valid Stock

Node 1 Node 2 Node 3

Live Demonstration

ASP.NET Client

• Fill Configuration– Fill Size– Time between Fills

• Statistics– Active users– Stocks

• User Management– Add, modify, delete users– Only people classified as “managers” can do this

Human Participant

• GUI Redesign– Order form moved from popup to static on left

side of the GUI– Post bid/Post offer/Create Button forms combined

into one

Human Participant

• Dynamic Buttons– Create new buttons given parameters

• Stock Symbol• Volume of Stock• Stock Price

– All or some of the fields may be filled out• Blank fields filled in when button is clicked

– Buttons may be modified or deleted

Human Participant Demonstration

Performance

• Throughput of Bids/Orders• Capacity for Simultaneous Connections

Fill Client Performance

100 Orders, 500 Shares

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Fill Client Performance500 Orders, 500 Shares

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Fill Client Performance

1000 Orders, 500 Shares

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Benefits of the RSMS System

• Allows trading strategies to be tested on historical data– Simulated Market Time allows long histories to be

run at a higher velocity• Fill strategies can be developed using a feedback loop

generated by interactions with real data running in sync

• Allows developers to test trading software under simulated market conditions

Special Thanks to HBK Investments

Questions?