Nasdaq, Object Trading to Offer Risk Controls for Direct Market Access

Nasdaq OMX Group and a European provider of direct access to securities markets said they will provide “dynamic” pre-trade, at-trade and post-trade controls to broker-dealers serving high-speed trading firms.

The FTEN subsidiary of Nasdaq OMX Group and Object Trading said they will offer the risk controls in a fashion that will work across multiple markets as well as multiple types of securities, from stocks to bonds to futures and options.

The controls are designed to meet the needs of broker-dealers who need to manage risks, when providing customers with direct access to markets, under their sponsorship.

The Securities and Exchange Commission, for instance, has banned so-called naked access, where high-speed trading firms using their brokers’ market participant identification codes could trade on electronic venues without first running their orders through any controls on size, price or other characteristics that might affect trading – or the broker itself.

The alliance combines FTEN's RX system, which has deep data on market activity and works with existing market access infrastructure, and Object Trading's FrontRunner trading gateways and real-time market data.

The combination should help brokers manage and allocate risk on a global basis. Object Trading's FrontRunner suite combined with FTEN's services will provide risk constraints at every global trading gateway a broker or its customer will enter.

In order to reduce systemic risk with regard to high-speed trade flow, the alliance between FTEN and Object Trading will enable combined use of the following real-time risk management capabilities:

• Pre-Trade Controls – controls in place prior to submission of orders to trading platforms;

• At-Trade Controls – controls in place immediately after submission of orders to trading platforms;

• Immediate Post-Trade Controls – controls in place after submission of orders to trading platforms later in time than at-trade controls;

“As regulators across the globe are focusing on risk management standards that move beyond traditional and largely post-trade methods of dealing with infractions via regulatory audits, penalties and sanctions, broker-dealers need sufficient control mechanisms that can cooperatively manage risk across their global trading operations in real-time,’’ said Ted Myerson, Chief Executive Officer of FTEN, said. "FTEN serves market participants whose interaction is fragmented by numerous trading platforms, disparate trading systems, and multiple asset classes.’’

Nasdaq OMX Group acquired FTEN one year ago.

Tom Steinert-Threlkeld writes for Securities Technology Monitor.