Exclusive Online Only ContentRosenthal Collins Unveils Real-Time Risk System for Futures
January 12, 2009
Futures commission merchant Rosenthal Collins Group (RCG) is announcing today that it has created a real-time risk management system it touts as a “first of its kind” for futures brokerages.
The platform, RCG RiskHunter, was developed with Chicago-based Connamara Systems, a cross-asset-class trading systems provider, and is based on complex event processing (CEP) technology from Coral8. Designed to identify trading patterns that deviate from historical behavior, the system will enable RCG to respond rapidly to problems, shutting down individual accounts in minutes when needed.
“This is all about mitigation of sudden risk exposure to our firm and providing an early warning system,” explained Maureen Downs, president of RCG in Chicago. The firm is aiming to address an array of risk issues, “whether they [are] due to rogue trading or unusual movements in markets or external, unexpected events such as 9-11,” she said. Rosenthal Collins is seeking patent protection for the system, which is in beta-testing at the firm and expected to be available to clients by the second quarter.
“RCG RiskHunter goes beyond our already robust pre- and post-trade risk management processes to protect our clients, trading personnel and the firm,” said RCG chairman and CEO Scott Gordon in a prepared statement. He stressed that RiskHunter gives RCG risk personnel a new way to highlight potential problems before they have a significant impact.
According to Downs, the system is integrated into RCG’s back office, so that it can accumulate data and search for key indicators to verify that every client trade is within defined parameters. A team of three or four developers worked for a little less than a year to create and integrate RiskHunter, said Downs, who noted that because the platform operates after an execution or pricing update, it does not slow down the trading process. While the system--which alerts the firm to any unusual patterns within one to three minutes of a trade--was built for in-house usage, RCG is considering offering it as licensed software, she said.
John Morrell, VP of product marketing at Mountain View, Calif.-based Coral8, said that several factors brought his company’s CEP engine to the attention of Rosenthal Collins. “We were selected because of the developer-friendliness of our product--in particular, its SQL-based capabilities and the way our platform allowed them to quickly and effectively structure their risk management applications with a powerful enough infrastructure to accommodate a high volume of trades,” he said.
Through RCG algorithms, the Coral8 engine and Connamara’s integration efforts, RiskHunter ties together multiple risk management systems within the firm. “The new system completes the pre-trade and post-trade loop for risk management, enabling RCG to have a much faster view of potential issues than others in the industry,” asserted Jim Downs, founder and CEO of Connamara.
“One rogue trader can blow a futures brokerage’s profitability in a day,” or even shut it down forever, observed Paul Zubulake, senior analyst at Boston-based Aite Group. With highly volatile markets and execution margins at minuscule levels, state-of-the-art risk management systems are now a necessity, said Zubulake, who has not seen RiskHunter in action and pointed to a common concern with such technology--slowing down executions.
RCG’s Gordon said that his firm has found the new risk platform “so flexible and customizable that we can continuously modify the scope of the system to add new risk factors and algorithms that enhance what RiskHunter can do.”
