Back to our exploration of another use case for CEP: Real-Time P&L. Last week, I published an introduction to RTP&L from a paper I did with Bob Giffords. Tomorrow, Corwin Yu and I will hold a webcast: The Best Practices of Real-time P&L (register here). We'll explore the requirements and best practices of real-time P&L systems, and demonstrate the StreamBase Real-Time P&L Framework live.
What are the requirements of real-time P&L? Today’s trader execution environment involves orchestrating
many different broker, market, and in-house platforms, typically with multiple execution management (EMS) or order management systems (OMS) dedicated to different asset classes.
Consolidated and direct feeds from firms like Reuters, Bloomberg, Comstock and the Exchanges and ECN platforms need to be integrated along with specialist broker and in-house feeds and distributed to the appropriate analytical and trading systems. Trades too need to be tracked, not just back to orders but allocated to underlying instruments, portfolios and strategies if they are to inform decisions. OTC transactions may not be fully automated, so data collection for real time P&L will also need to link into the appropriate work-flow processes within the firm.
Some traders are even integrating elementized news feeds as well as reference data feeds like corporate action announcements into their pricing systems. These can be XML feeds from the news wire services to pull out and tag key event data or market sentiment indicators from the articles themselves.
Where needed for complex instruments, pricing models mediate the data streams to value them based on market reference prices. Indeed there are cases where multiple valuation sources are employed and these need to be cleansed of errors or outliers, normalised and harmonised into a consistent set of prices to be used for the P&L. Where appropriate, foreign exchange translations may be needed to bring all values into the firm’s reporting currency.
The P&L system next aggregates all the valuations and compares them to various baselines to work out the relative gains and losses. These can be rolled up to the book, strategy or portfolio level, and the firm may then apply alert or market signal filters.
On the output side these filters might trigger intraday alerts and generate analytics and graphical charts to enhance trader or investment manager control. Heads of desk may want to drill down into the detail and understand why the values are changing. Automated compliance auditing algorithms can be run and compliance officers may use this real-time view of trading activity to monitor that regulatory and prudential controls are enforced to satisfy demands for intra day due diligence.
As traders gain confidence, the outputs from the P&L calculation can be fed back to algorithmic trading engines as signals to generate automated orders using investment strategy models.
Next up: A Case Study on Real-Time P&L.
What are the requirements of real-time P&L? Today’s trader execution environment involves orchestrating
Consolidated and direct feeds from firms like Reuters, Bloomberg, Comstock and the Exchanges and ECN platforms need to be integrated along with specialist broker and in-house feeds and distributed to the appropriate analytical and trading systems. Trades too need to be tracked, not just back to orders but allocated to underlying instruments, portfolios and strategies if they are to inform decisions. OTC transactions may not be fully automated, so data collection for real time P&L will also need to link into the appropriate work-flow processes within the firm.
Some traders are even integrating elementized news feeds as well as reference data feeds like corporate action announcements into their pricing systems. These can be XML feeds from the news wire services to pull out and tag key event data or market sentiment indicators from the articles themselves.
Where needed for complex instruments, pricing models mediate the data streams to value them based on market reference prices. Indeed there are cases where multiple valuation sources are employed and these need to be cleansed of errors or outliers, normalised and harmonised into a consistent set of prices to be used for the P&L. Where appropriate, foreign exchange translations may be needed to bring all values into the firm’s reporting currency.
The P&L system next aggregates all the valuations and compares them to various baselines to work out the relative gains and losses. These can be rolled up to the book, strategy or portfolio level, and the firm may then apply alert or market signal filters.
On the output side these filters might trigger intraday alerts and generate analytics and graphical charts to enhance trader or investment manager control. Heads of desk may want to drill down into the detail and understand why the values are changing. Automated compliance auditing algorithms can be run and compliance officers may use this real-time view of trading activity to monitor that regulatory and prudential controls are enforced to satisfy demands for intra day due diligence.
As traders gain confidence, the outputs from the P&L calculation can be fed back to algorithmic trading engines as signals to generate automated orders using investment strategy models.
Next up: A Case Study on Real-Time P&L.
