Automatic Trade Capture
: 31 Jan 2019
Trade capture refers to the four distinct activities that must be performed to ensure completed trades end up assigned to the correct accounts in the correct quantities and prices. These activities are:
- Obtain the fills
- Assign the number of lots to each account
- Assign fill prices to each account
- Communicate the allocations to executing and clearing brokers
Performing this process correctly, every day in a timely manner, is key to the successful operation of any CTA. Here is how TheBooks can be used to facilitate this process.
Obtain the fills
The two most popular ways CTAs use to obtain fills are:
- Receive a CSV file of fills from the executing platform or broker and loading them into TheBooks
- Via one or more FIX connections to either exchanges, brokers, or trading platforms causing fills to be processed as they happen
To facilitate working with CSV files, TheBooks provides a way to define the layout and processing rules for CSV files. Once the definition process has been completed, the files are automatically processed any time a file is placed in a designated folder. If desired, TheBooks can be configured to reach out to FTP sites or accept emailed trade files and automatically process them as well.
For environments that require one or more FIX connections, TheBooks supports exchange-direct, broker-direct, and execution platform FIX interfaces. These typically use an encrypted connection over the internet and provide a real-time trade flow directly into TheBooks.
Assign lots to each account
When a trade is received, the contracts that make up a trade are typically assigned to either a holding account or to a group of accounts. Trades are usually assigned to a holding account when all the trades in a given contract are to be aggregated at the end of the session. Trades are usually directly assigned to a group of accounts when the assignment of contract quantities and the allocation of fills is to be done as the trade is completed.
Regardless of the approach, accounts generally receive contract quantity assignments based on the account’s trading size relative to the other accounts that make up the trade.
Account controls
The assignment of which specific accounts from an account group are included in a trade and how many contracts a given account receives is controlled by properties associated with the account. The properties that control this are:
- Trading Size - This is a formula (or constant) that specifies the trading level of the account in the account’s reporting currency.
- Include/Exclude market/sector list - This is the list of markets/sectors the account can or cannot trade.
- Trading System multiplier - This is a factor that is used to scale the trading size based on the trading system(s) involved in the trade.
When TheBooks receives a trade associated with a group of accounts, it uses these properties to filter out any accounts that are not allowed to trade the market, adjusts the trading sizes as required, and converts them to a common currency if required. It then assigns each account it’s share of the overall trade based on the account’s trading size relative to the rest of the accounts.
When trades assigned to holding accounts are bundled together and assigned to an account group, the same process is followed when creating the combined trade.
Assign fill prices
Quantity/fill price pairs are automatically allocated to each account in the trade based on rules configured for the system. The most common approach is to use the low price to low account number method, however, TheBooks supports other approaches, including exchange APS and a synthetic average price method that gives each account in a trade a mixed fill that is as close to the overall trades average price as possible. This method is especially useful when trading markets that do not support APS and account sizes are widely varied.
Communicate Allocations
After the trade is complete, allocations are typically sent to the executing firm and frequently to each of the clearing firms as well. More often then not, these are sent as CSV files (usually different formats for each counter-party) either via a secure FTP (sFTP) connection or via email.
TheBooks allows the definition of what file formats go to each counter-party. As part of the definition, the transmission method (FTP, sFTP, eMail, etc) and what symbology should be used is also configured. As a result, trading-related information is automatically sent to all counter-parties related to a trade as soon as the trade is complete in the format and via the method required by the counter-party.
Summary
By using TheBooks, you can fully automate the trade capture process to ensure that accounts receive the correct contract quantities and fair fill prices and that counter-parties receive timely and accurate notification trading activity allowing your staff to focus on other aspects of running the CTA.