WatersTechnology: Tech Vendors Rethink Risk in Era of Surging Options Volume

RQD, a new start-up in the US clearing space, was created by spinning out the execution and custody business of Volant Trading, a market-making firm founded in 2006. Originally set up as an options market-maker, the company expanded into low-latency equities execution in 2012. But in 2018, it obtained a limited clearing license and relaunched in late November of last year on the premise that advancement is required (RQD is an abbreviation of “required”) in back-office technology—platforms and tools for data management, processing, and reconciliations.

Clearing firms are not interested in low latency in the same way the front office is—i.e., how fast a trade can be done. For them, the technology burden is about scale and capacity, the ability to ingest this data reliably and quickly, and reflect it back to their counterparts efficiently, says RQD CTO Jon Fowler.

“The interesting part here is that’s really where most of the risk, or at least a lot of the risk, lives,” he says. “Especially when we’re talking about increased volumes, and especially with options then being leveraged and derivatives themselves, it doesn’t take much slippage to find yourself in a big hole.”

When it launched, RQD wanted to be able to perform all risk management, reconciliations, and monitoring in real time. With that goal in mind, Fowler and his team built the company’s system using its own codebase and with the ability to ingest data from its clearing correspondents in real time. Many back-office providers, in contrast, often bolt their services onto legacy mainframes or clunky databases, Fowler says.

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