AFTAs 2013: Best Risk Management Initiative—International Securities Exchange

With PrecISE’s upgrades, risk and compliance officers are able to monitor trading flow in real time for multiple users, and designate certain parameters designed to moderate trading capabilities. These limits can include maximum order quantity or maximum notional value either on a per-order or per-day basis, while restricted securities can be defined, resulting in the system automatically rejecting an order if it contravenes these rules. Pre-open orders, too, can be automatically cancelled.

Indeed, it’s the automated features that set PrecISE apart from its peers. As an exchange-operated system, it has capabilities that would be beyond those of a system residing within a prime broker or investment bank, including risk management functionality such as cancel-on-disconnect, where open quotes are immediately deleted if connectivity to the exchange is lost. So-called “speed bumps” are built into the system, where market-making firms are able to set exposure tolerance levels on products, and it has capabilities for price sensitivity on a market level, whereby orders are automatically rejected if they price an order at an excessive percentage comparable to the market. The market operations division at ISE, too, monitors trading activity, and can instigate a manual kill switch, should it be required to do so.

Taken individually, these tools aren’t extraordinary by any means. Order limits, speed bumps, circuit breakers and the like have been part of stock exchanges’ risk management inventory for a number of years now. However, combining them with the already impressive PrecISE platform makes for a compelling technology fusion, one that pushes the envelope of what most exchanges are doing at present, bringing together execution and order management functions with compliance and risk to create a strong technology backbone for safe and efficient options trading.

ISE Reaction
“On behalf of the technology division at ISE, we are truly honored to receive this award for the best risk management initiative for 2013. Risk management is an important focus of our technology roadmap. We work hard to continually enhance the risk management functionality available to our member firms through our PrecISE front-end execution and order management system and through our T7 trading platform so that they have the utmost confidence when sending orders and quotes to ISE and ISE Gemini.”
—Daniel Friel, CIO, International Securities Exchange