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Foreign Exchange

Traiana partners with FX banks and ECNs in new system to monitor HFT trading

Traiana, the post-trade technology firm owned by ICAP, and a group of the FX industry’s leading prime brokers and electronic exchanges are introducing a new technology platform, Harmony CreditLink, that will more effectively manage the credit risks associated with breaches of trading limits by high-frequency traders.

The industry-wide initiative, which has been a year in development, will centrally monitor and manage trading limits on FX exchanges, otherwise known as ECNs, by connecting them into a network with the FX market’s leading prime brokers, so that all parties can be notified in real time when HFT firms breach limits, and their trades can be terminated immediately.

“We’re moving to a place where by one stroke of a button, within less than a second, a client activity across all electronic platforms can be terminated,” Gil Mandelzis, Traiana’s chief executive officer, tells EuromoneyFXNews. “In the old days, the problem was that it could take 15-30 minutes to terminate a client’s trades – and when you think about the HFT world, quite a large position could be built up in that space of time.”

Mandelzis stresses that this challenge isn’t unique to the FX market, as it also exists in other asset classes where HFT has proliferated over the past decade, and his firm plans to roll out similar technology across those products in the future, he says.

While the monitoring of client credit limits in the trading of FX is not new, the growth of high-frequency and algorithmic trading across a multitude of trading exchanges has made the process more complex, because trading venues and credit providers, primarily the prime brokers, have not been linked together.

For instance, electronic exchanges have their servers in many different locations. This means that should a HFT firm be executing across multiple trading venues and one of those servers has a malfunction, some of that firm’s trades could go into error without it or the prime broker being aware, thus leading to it trading on the wrong position. The role of HarmonyCreditLink is to identify and rectify that problem in seconds.

“The algorithmic world is a technology world, and when you have a technology problem in that world, you immediately have a business problem,” says Mandelzis.

Traiana’s partnering banks are Citigroup, Deutsche Bank, JPMorgan and Morgan Stanley. They are working with trading platforms operated by Bloomberg Tradebook, EBS, FXCM, Hotspot FX, Currenex and Thomson Reuters.

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