Trading Newsflashes: The Options Clearing Corp. Applies Monte-Carlo Risk Management to Calculate Margins

The Options Clearing Corp. Applies Monte-Carlo Risk Management to Margins

The Options Clearing Corporation (OCC), based in Chicago, received approval from the Securities and Exchange Commission (SEC) to implement a new risk management methodology for figuring out the amount of margin deposits required of OCC clearing members.

OCC says it will be the first derivatives clearinghouse in the world to use a large-scale Monte Carlo-based risk-management methodology. This methodology—called "STANS," for System for Theoretical Analysis and Numerical Simulations—will be used to measure the exposure of portfolios of options, futures and cash instruments cleared and carried by OCC on behalf of its clearing members. By using Monte Carlo-based simulation techniques, STANS generates a set of 10,000 hypothetical market scenarios intended to provide a realistic evaluation of risk at the portfolio level. The simulated scenarios incorporate information extracted from the historical behavior of each individual security as well as its relationship to the behavior of other securities. Scenarios are generated for over 7,000 risk factors, including a broad range of individual equities, exchange traded funds, stock indices, currencies and commodity products.

OCC says the more accurate margin calculations in STANS should improve the financial stability of the derivatives markets, and produce clearing and settlement efficiencies beneficial to investors. OCC expects to implement STANS later this year.

Korea Exchange Distributes Data via BT Radianz

Koscom Corporation—the distributor of the Korea Exchange's (KRX's) market data—signed an agreement with BT South Korea to disseminate KRX's market data. BT will utilize BT Radianz's shared market infrastructure to support the distribution of the exchange's real-time data. BT will make the data available to more than 10,000 financial services sites worldwide.

As a result of the agreement, Koscom will make the KRX market data available on a shared network for the first time, which will simplify access to the data for the global financial community. "Through BT's global financial services vertical, it will be easier for customers to receive real-time Korea market information in a cost effective manner," states Shin, Heon Chan, deputy CEO of Koscom Corporation in the release. "Previously. the cost and complexity faced by international counterparties to reach Korea and establish connectivity had been considerable," he further states.

According to Scott Cooper, head of Asian business development for BT Radianz, who is quoted in the release, this marks the first time that global firms could obtain low latency access to market data from the Korean securities market using a managed network service. Cooper adds that BT South Korea's relationship with Koscom fits in with BT Group's overall electronic trading initiatives in Asia to continue to create electronic connectivity throughout the region.

Reuters Unveils Electronic Trading for Exchange-Traded Instruments

Reuters launched a new electronic trading feature for professionals dealing in exchange traded markets. The capability is called Reuters Trading for Exchanges, which allows buy-side users to discover the price of an instrument, select from a range of brokers with which to execute a trade, all from a single screen.

Sell-side firms will be able acess the Reuters global community of desktop users, and target trading strategies at the buy-side. Deutsche Bank, Barclays Capital and FIMAT International Banque S.A. are the first to sign up to offer trade execution and clearing services. More brokers, including ABN Amro Futures, are committed to join during 2006.

Users of Reuters Trading for Exchanges will be able to enter an order for an exchange traded instrument supported by participating brokers. They will also have access to other services including individual trading strategies and algorithmic trading engines offered by execution and clearing brokers. Orders will be transmitted to brokers via the FIX messaging standard.

Initially, the new exchange trading capability will be offered through Reuters 3000 Xtra and Reuters Station, which combined have about 120,000 users around the world, but will be extended to Reuters desktop products—a potential community of about 300,000 users.

Aegis Software Certifies AthenaTrader with Leading Sell-Side Firms

Aegis Software's trading product, AthenaTrader, is now certified with several leading broker-dealers including Goldman Sachs, JP Morgan Chase, Lehman Brothers, Morgan Stanley, Citigroup and Calyon Financial.

AthenaTrader is a broker-neutral order execution system for equities, options futures and foreign exchange. It includes extensive support for algorithmic, quantitative, portfolio and basket trading, the company says.

"By certifying Athena with leading broker/dealers in the marketplace, Athena offers buy-side firms and hedge funds a single platform to access global markets for multiple asset classes," states Steven Santivenere, product sales manager for Aegis Software in the release. Among its features it offers is the ability of a user to slice a basket across multiple brokers and compare slippage values of one broker versus another. In addition, a buy-side trader can hedge across two different markets, i.e., spot foreign exchange on HotSpot against FX futures on the CME, Santivenere states in the release. On the algorithmic trading front, the software provides access to canned algorithms built into Athena, an interface for a trader to create custom strategies, or an array of broker-dealer provided algorithms or access to an exchange's own algorithms.

"Today, many exchanges provide iceberg or peg algorithms, and we anticipate that the exchanges/ECNs will become more and more competitive with their algorithmic offerings," states Santivenere in the release.