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Cooperative Brokerage Integration for Transaction Capacity Sharing:
A Case Study in Hong Kong
Dickson K. W. CHIUSenior Member, IEEE
Dickson Computer [email protected],
Anthony C. Y. Lam Dept. of Computer Science
Hong Kong University of Science & Technology
Brokerage
Integration Capacity Sharing HICSS39-2
Application Background Further automation of Hong Kong Exchange and
Clearing Limited (HKEX) Third Generation Automatic Order Matching and
Execution System (AMS/3) Open system Many stock trading system developers integrate
their flagship solutions such as the Broker Supplied System (BSS) for connection to HKEX
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Integration Capacity Sharing HICSS39-6
More Advanced Emerging Requirements
Sharing very expensive trading capacity rights Throttle rate control Buying additional throttle rate is less expensive but on a
monthly-fee basis Improve trading order response Hardware failure and outage Business integration and extensibility
credit controllers, settlement officers, …
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Integration Capacity Sharing HICSS39-7
Problems Motivating this Research
Communications among partners have no common standard of message protocols
No intelligent mechanisms for integration with the trading system for capacity sharing
Hard to manage the security issues using different kinds of encryption techniques.
Web services based integration for capacity sharing of partner brokerages.
Transaction Capacity Sharing System (TCSS)
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Integration Capacity Sharing HICSS39-8
TCSS Overview
HKEX Trading Host
Router Hub
`
Workstation
`
Workstation
RAS withWeb ServicesiBSS
Open Gateway(OG)
SO
AP
/ Http
Global Brokerage Partnerwith
Web Services
SOAP / Http
Local Brokerage Partnerwith
Web Services
Local Brokerage Partner
withWeb Services
SOAP / Http
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Integration Capacity Sharing HICSS39-9
Main TCSS Mechanism
When the request queue length exceed a certain threshold, route the request to TCSS in order to forward it to partner brokerages
Via asynchronous Web services TCSS has to handle many outstanding orders
simultaneously while the time when the orders can be fulfilled is unpredictable
Req 1
Req 2
Req 3
Req 3
Req 4
Req 5
Req 6
Req 19
Req 20
...
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Integration Capacity Sharing HICSS39-10
TCSS Intelligence and Heuristics Outstanding backlog and forwarding threshold Forwarding limit and cost of different brokerages Number of partner brokerages
Base on these, TCSS adjust its forwarding threshold and forwarding limit
dynamically according to its current queue length to achieve an effective flow control
send piggy-back with acknowledgements or broadcasted to partners if necessary
use such information for choosing an appropriate target of the next forwarded order
observe and honor this limit to maintain good relationship
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Integration Capacity Sharing HICSS39-11
TCSS Architecture
Partner Brokerage with TCSS / BSSInternet
Service Dispatching
and Aggregation
Transaction Web
Services
BSS ApplicationWeb Services
Interface
Database
SOAP
SOAP
TCSS Process Manager
Adaptation Manager
TCP/IP
ODBC
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Integration Capacity Sharing HICSS39-12
TCSS Protocol
Standard protocol called Financial Information eXchange (FIX) developed specifically for real-time electronic exchange of securities transactions
Adaptation Manager translates the message as FIX Markup Language (FIXML) using the FIX protocol
8=FIX.4.2;9=199;35=D;34=10;49=VENDOR;115=CUSTOMER;144=BOSTONEQ;56=BROKER;
57=DOT;143=NY;52=20000907-09:25:28;11=ORD_1;21=2;110=1000;55=EK;22=1;
48=277461109;54=1;60=20000907.09:25:56;38=5000;40=2;44=62.5;
15=HKD;47=A;10=165;
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FIXML and SOAP example<FIXML> <FIXML Message><Header>. . .</Header><ApplicationMessage><Order> <CIOrdID>ORD_1</CIOrdID> <HandInst Value="2" /> <MinQty>1000</MinQty> <Instrument> <Symbol>EK</Symbol> <IDSource>1</IDSource> <SecurityID>277461109</SecurityID> </Instrument> <Side Value="1" /> <TransactTime>20000907.09:25:56</TransactTime> <OrderQuantity> <OrderQty>5000</OrderQty> </OrderQuantity> <OrderType> <LimitOrder Value="2"> <Price>62.5</Price> </LimitOrder> </OrderType> <Currency Value="HKD" /> <Rule80A Value="A" /> </Order><ApplicationMessage></FIXMLMessage></FIXML>
<?xml version=”1.0” encoding=”UTF-8”?><SOAP-ENV:Envelopexmlns:SOAP-ENV=”http://schemas.xmlsoap.org/soap/envelope/”xmlns:SOAP-ENC=”http://schemas.xmlsoap.org/soap/encoding/”xmlns:xsi=”http://www.w3.org/2001/XMLSchema-instance”<SOAP-ENV:BodySOAP-ENV:encodingStyle=”http://schemas.xmlsoap.org/soap/
encoding/”><sendMessage><FIXMLMessage><Header><Sender> <CompID>Hopgood</CompID> </Sender><Target> <CompID>Lloyds</CompID> </Target></Header><ApplicationMessage><Indication><IOIid>41926</IOIid><Instrument><Security> <Symbol>IBM</Symbol> </Security></Instrument><IOISide Value="1"/><IOIShares>2000</IOIShares><Price>30.00</Price><Currency Value="GBP"/><ValidUntilTime>22:50</ValidUntilTime></Indication></ApplicationMessage></FIXMLMessage></sendMessage></SOAP-ENV:Body></SOAP-ENV:Envelope>
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WS-Security
W3C security specifications SOAP Header element to carry security-related data
XML Signature header can contain the information defined by XML
Signature that conveys how the message was signed, the key that was used, and the resulting signature value
XML Encryption encryption information can be contained within the
WS-Security header WS-License
describes how existing digital credentials and their associated trust semantics
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Summary
TCSS share transaction capacity => decrease order queuing time
Avoid significant costs of buying extra trading rights, which is very expensive
Group SME brokerage together against large brokerages that have much better facilities and trading capacities
Employment of Web service technologies Phased approach
Best for SME brokerages having multiple broker licenses Alliance of different brokerages => legal / regulatory
issues
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Integration Capacity Sharing HICSS39-16
Future Work
Legal / regulatory issues Inter-brokerage charging policies and schemes How detail heuristics could be best formulated Simulations to experiment various parameters
order processing and turnaround time choice of parameters
Priority management in the routing for valued customers transactions that involve a large amount