Challenges Facing DMA Support in Asia

Archive for the ‘In the Office’ Category

Review – Kader Vali’s Blog

Not specific to Asian markets, but an excellent resource nonetheless, Kader Vali’s Practical topics for IT Professionals of Capital Markets blog is possibly the best technical-focused site I have found.

While a lot of the information is not specific to electronic trading in particular, and for client-facing support professionals the information can be a little technical at times, there are a number of fantastic primers and videos, including:

It seems that Kader hasn’t been posting so often lately, down to about once every month or so, but I’m still subscribed to him in my RSS reader. Furthermore, information he has already posted is a well-written, comprehensive resource to which I keep coming back.

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The Information Horder

This recent comic from one of my favorite webcomics, xkcd, reminded me of one of the often-present members of a support team: the Information Horder.

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Supporting Algorithmic Trading in Asia

A while back I was asked the question “what do you see in the short-to-medium term so far as algos in Asia are concerned?” While Asia with its quirks and idiosyncrasies has meant that the standard set of algorithms (VWAP, TWAP, participation, plus an aggressive (ie will actively cross the spread) and a passive offering) have had to be all but re-coded for the various Asian markets, I felt that the average algorithm user (in many cases brokers trading on behalf of clients) would demand a rationalization of the algos available. At the time the company I was working for had just developed a fancy new algo and were having all the usual troubles that come with deploying it in Asia without any testing whatsoever. Other companies were promoting the fact that they offered over 150 different algorithms across several dozen brokers.

My prediction was based on the 80-20 rule (and let’s face it, the lion’s share of the volume from funds trading Asia via algorithms do so via VWAP), and has been somewhat correct, with one major broker that I know of decommissioning two algorithms, probably due to the cost-ineffectiveness of maintaining rarely-used algorithms in the region. However today I see on Asia Etrading that the march continues, with Instinet adding one more algorithm to their suite.

This news reminded me of some of the challenges of supporting algorithms in Asia which I have noticed over the last few years.

Local Development Team
For starters, you need to have a team locally who knows the intricacies of the various Asian markets, and is available for support during Asian hours. No longer is it acceptable to raise issues to the US support team, and get back to the client the next day. If you’re not prepared to commit to a local development team then you’re probably not going to be taken seriously by clients.

One unavoidable consequence of this is that upgrades branch entirely from their US/Europe upgrade path. And when you are already thin on resources in the area you can find you have an ever-increasing gap between client demands and the implemented reality. Especially for clients trading Asian markets from the US or Europe, all they want is for their algorithms to function the same, seamlessly across regions. If you’re involved in the support of these clients be prepared to explain to the folks in Sales and to the client directly. I recommend a proactive approach, but I understand that this isn’t always feasible.

A Few Good Men
Related to the above point, sourcing support staff can also be an issue. You can’t just fly someone over from the US, unfamiliar with local markets, in order to oversee a server-side upgrade of an algo. This also affects emergency replacement of staff when people leave – for other roles you can often easily just substitute someone in from another region temporarily to cover until a replacement is found (expect a post from me talking about this in more detail shortly).

Infrastructure in Every Region
As algorithms tend to be implemented as a separate service running on a server, it is possible to co-locate just the algorithm server in certain cases. Ironically the firms that can support this infrastructure best are large, established operators, whereas it is the smaller firms that could really benefit from being able to separate the infrastructure. For comparison, the “smaller” firm I worked at previously chose to have the majority of the infrastructure in Hong Kong. TSE-bound orders were sent out from Hong Kong “post-processing” to a broker in Japan. Needless to say, latency was a significant issue.

All-in-all the issues for supporting algorithms in Asia are similar to the issues for supporting other electronic trading support functions. However I find that the issues tend to be more pronounced, and the severity of mistakes can be much higher. I guess on the flip side, for those companies who are prepared to commit to providing and supporting algorithms properly, localizing and fine-tuning them as appropriate, it can definitely give the impression that the company has a strong commitment to the region.

Three Potential Impacts During an Incident

When an incident occurs and you’re manning the phones it can be a challenge to keep your eye on what is important. Phones ringing, connection to several exchanges gone “red,” your company’s trading system melting down around you. Sales people yelling at you to “do something.” So how exactly do you prioritize in a case like this?

The simple answer has traditionally been “follow the money.” If an incident has a chance to impact PL, such as a position which a client claims isn’t theirs, as trade support staff you would ideally investigate, find evidence of whose trade it actually is and alert that client. If the client pushes back then you help the client’s sales representative put together a case and let them deal with the client. Under no circumstance do you leave the office with an issue like this unresolved.

So the one risk you have to be aware of is Impact to PL. The other two often-overlooked risks are:

  • Impact to Reputation
  • Impact to Ego

Yes, you have to be aware of hurting people’s egos. After all, these are often traders we are dealing with here, and way up there on the top of their Ivory Towers traders often have the most fragile egos of all. But more on this in a moment.

A quick search on Google will show that vast amounts of research has been done on managing Reputation Risk. And rightly so – nothing gets media outlets more excited than a scandal which could potentially destroy the reputation of a major firm.

The thing about damaging a company’s reputation is that oftentimes it is not due to a single mistake, but a corporate culture that encourages something bad (eg sexual harassment, cooking the books, etc), and often involve a systematic approach which spans months or years.

This does not mean you are safe to make mistakes while supporting DMA clients.

Each time you make a mistake, even if it has no impact on PL, it affects the reputation of your company. Over time, these mistakes add up, and your company can start to get a reputation for “bad service,” for example.

While this is probably not going to make front page news, don’t think for a moment that your clients don’t talk to each other. Whether it is two hedge fund managers catching up over beers and peanuts, or something more structured, people invariably get together and talk, and bitching about service is a favorite topic for people with money in Asia. All you need is one industry study on client satisfaction levels and if you have not been careful you may wake up one day embarrassed to find out that your company rated lowest in the region.

Of course, if you love making clients happy then I imagine this is not something you need to fix per se, rather something to keep in the back of your mind, especially in the heat of an incident.

Depending on your particular support model flavor you can sometimes find yourself forgetting that you are not in fact supporting machines, but the people who are invested in those machines. I don’t care how technical your role is, at the end of the day your job is to make someone happy.

The opposite of making someone happy is making them lose a lot of money, or as is especially important when working with clients in Asia, making them lose face.

Peoples’ egos can be fragile at the best of times. From your boss to your internal sales team, through to your external DMA clients, bruising the egos of those who directly or indirectly determine your bonus is not recommended.

Your boss, for example, should understand that his request for you to fill in your Performance Review documentation takes lower priority during a market-hours outage than making sure there are no outstanding positions. However there is a difference in terms of bruising his ego between snapping at him “Can’t you see I’m busy?!” in front of his peers, and telling him you will be with him shortly.

The same applies when dealing with clients. It sounds like common sense but you must do your best not to say anything to clients which may bruise their ego, even if they have started getting angry and insulting you. A bruised ego could see the client trade away to another broker for anything from a day to a lifetime.

Fortunately I would say that there is no-one else in the company better equipped to deal with clients under pressure than the DMA Support team. Additionally, “Ego Impact Risk” is the least direct of the three risks.

At the end of the day there aren’t any hard-and-fast rules about what to prioritize when things are going nuts. I can’t be sitting there next to you to hold your hand, and your teammates may be busy with clients on other calls. However it is important to at least be cognizant of these three risks and their potential impact.

When it comes down to it, a lot of what you do when supporting external DMA clients is reducing the risk to which your company is exposed. You will learn from experience – after a while prioritizing will come naturally to you. In the worst case scenario, where there is actual damage to PL, reputation or someone’s ego, you should acknowledge the loss but be able to explain why you prioritized the way you did.