Our mission this year is driven by two observations:
Our Alpha Generation Software Has Reached Maturity
Observation 1: Our core product suite for the buy-side (QuantOffice and QuantServer) has reached the state of functional maturity.
The core functionality of QuantOffice and QuantServer has been in use for over 10 years now and battle tested by more than 200 clients. During the last few years, the number of requests for new features and enhancements from our clients has been gradually declining and we are happy and proud to acknowledge that based on our communications with clients and prospects, the latest release of QuantOffice and QuantServer software provides a mature balance of power and flexibility such that practically any functional requirement of intelligent trading can be addressed by utilizing the current capabilities.
Of course, we are continuing to maintain and improve the product. In addition, there are always new trading venues and data providers that we continue to add. But we’re proud to announce that we’ve accomplished our mission to offer a solution for the ongoing process of:
- Developing and testing new alpha generation strategies
- Production deployment of these strategies
- Constantly refining and optimizing existing trading strategies.
Increasing Demand for Optimizing Order Executions
Observation 2: We are witnessing an increasing demand, from both the buy-side and sell-side clients, for tools to design, back-test, optimize and deploy in production advanced order execution algorithms. We also see demand for advanced execution analytics and reporting.
Improving Execution in Forex and Futures
Execution algos have long been deployed in equities trading. Take up of algo execution of equities, particularly smart order routing, really picked up after the Reg NMS (US) and MIFID (Europe) regulations of some ten years ago. These regs created market fragmentation and obligations for best execution (soon to be strengthened in Europe by MIFID II). Credit Suisse led the way in introducing the buyside to various types of algos.
In the absence of these regulatory drivers, algo execution in the futures and forex markets lagged. Starting maybe two years ago, driven by the explosion in execution venues (forex) and generally poor trading returns (futures), algo execution has increasingly been adopted in forex and futures trading.
Today, whilst there are important differences between asset classes, buyside traders (and hence the sell-side service providers) across equities, futures and forex are looking for assistance in improving execution quality, for executions completed both with algos and without.
Continuous Improvement in Execution Quality
Improvement is typically based on measuring execution quality (traditionally called Transaction Cost Analysis – TCA). However, more important than ex post measurement is how to (continuously) improve execution. In essence, the task at hand is to choose the best method of execution for the particular purpose (and in the case of equities and forex, the best location). This may or may not require an execution algo but it does require a continuous deterministic approach to execution. The determination of the best execution method is, based on our discussions with our buy-side and sell-side clients, of fundamental importance because of the financial rewards of getting it right.
We recently discussed forex order execution in an article in e-Forex magazine. This article goes into detail about how data recording and advanced analytics can be used to collect and constantly evaluate time series data with all the layers of historical orders, executions and order books from multiple liquidity providers. This approach provides the necessary granularity and a level of precision in execution decisions not available in traditional trading systems. Click here to download the article.
Building Advanced Tools to Improve Order Execution
As a result of these observations, our focus in 2017 is to provide buy-side and sell-side clients with the most advanced tools to improve order execution. We view this as fundamentally an opportunity to deploy computer science with a clear measurable objective of decreasing execution costs. To address the demands of large-scale order execution optimization, we are rolling-out new technology for massive, cloud-based, distributed back-testing which will enable practically unlimited throughputs measured in billions of messages per second. To address the requirements for ultra-low latency and high availability, we are developing the next generation of our Execution Server technology.
Advanced Analytics Demands Highly Skilled Computer Scientists
Successful systematic alpha generation and order execution is not easy. It requires precision. Implementing precision in the context of massive fast-moving data sets requires highly advanced computer science which in turn requires highly skilled computer scientists. Which Deltix has, and we hired an additional 15 in 2016 bringing our headcount to 65. Over 50% of our headcount is in R&D.
A Recent Market Development Enabling Advanced Analytics
The CME’s recent launch of “Market by Order” (MBO), so called Level 3, data is a very exciting development which will allow for the ultimate in precision of order execution. Leveraging such data will require software of the highest order and we are looking forward to deploying our solution to utilize MBO data with early adopters.
We will continue to demonstrate improvements in execution, as well as alpha generation ideas, in our own research which we publish on this blog.
To an exciting and successful 2017.
The Deltix Quantitative Research Team
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