Looking For Abnormal Market Activity

Cinnober Financial Technology AB, the Stockholm-based firm best known for its TRADExpress platform and accompanying software serving a variety of marketplace and clearing roles, recently delivered a new market-monitoring system to the Qatar Exchange. The system, known as Scila Surveillance, has its own fascination as a sign of the times in a world from which the human touch is disappearing.

Though the software in question is actually developed and maintained by Scila AB, in which Cinnober has just a minority stake, Cinnober has an exclusive distribution agreement.

Scila Surveillance creates alerts to detect abnormal market behavior. Although the version now in place at QE is customized for that exchange, Scila Surveillance as a technology is also in use at the Deutsche Börse, Eurex, and the Oslo Börs.

Market Surveillance

Cinnober describes Scila as offering “a rich graphical interface for the surveillance of the market” built around real-time display of trade data and related information; a set of alerts for the detection of abnormal activity in real time; and a set of reports that provide analytical statistics to selected users.

What kind of abnormal activity? One of the purposes of Scila is the detection of harmful variants of algorithmic trading. As Cinnober explained in a recent white paper, this can include the presence of “snipers” that systematically take advantage of weaknesses in a way that drives off market makers, thereby reducing liquidity. Scila helps an exchange get ahead of such a problem is by measuring order aggressiveness (that is the tendency of a particular trader to be on the initiating rather than the accepting side of transactions) and by looking for the order-flow anomalies that show up in such circumstances. For example, some algorithmic systems have a habit of sending “multiple cancels for the same order, in order to reduce impact from the inherent jitter … of the marketplace system.”

In other words, such algorithms create signs of their presence precisely in the act of trying to mask themselves.

Cinnober also has a new chief executive: Javier Tordable, formerly a senior advisor to both Deutsche Börse and Eurex.

The New Boss
Nils-Robert Persson, the executive chairman of Cinnober, said in a statement that Tordable “stood out as a really interesting candidate early in the recruitment process,” due to his combination of know-how, entrepreneurial spirit, and international experiences.

Per-Anders Hall-Bedman, who has been serving as the acting CEO of Cinnober since the departure of Jan Arpi in November 2011, will return to the role of Deputy CEO. Arpi left Cinnober to take the position of CFO at one of the largest Swedish banks.

Tordable’s international experiences include his involvement in a/c/e, the alliance between Eurex and CBOT, in the period before CBOT was itself absorbed by the CME, as well as a part in the creation of the leading Spanish government debt market, MTS Spain.

Tordable takes the helm at what may be a critical time for Cinnober. The new regulatory focus on over-the-counter derivatives in countries around the globe has driven a new level of demand for technology solutions at exchanges and clearinghouses, and Cinnober may have to scale itself up to meet this development.

In September 2011, the TABB Group issued a report on OTC Derivatives Clearing Technology. TABB said that the clearing infrastructure now in place is not flexible or scalable enough “to handle the changes that are coming.” Clearing infrastructures must be upgraded, both at the clearinghouses themselves and in the back offices of dealers.

The Index Engine

Cinnober has also quite recently released TRADExpress Index Engine, the latest addition to the suite of products designed for the TRADExpress platform. It has described the Index Engine as the financial industry’s fastest real-time index engine. Nils-Robert Persson, the company’s executive chairman, said that the performance of the Index Engine “is measured in microseconds without impinging on system availability or scalability.”

The Index Engine connects to data feeds and even directly to feeds from distinct trading venues, calculates the indexes after updating events, and disseminates the results in real time. Plug-ins are available, which can be replaced or extended by customization.

Cinnober will deliver the Index Engine first to the Stock Exchange of Thailand. The President of the SET, Charamporn Jotikasthira, said that he expects the delivery will “make it easier to introduce new indexing products and services much easier and faster – on our own.”