Monday, April 23, 2012

secDB -- helps derivatives more than cash traders?

(Personal speculations only)

Now I feel secDB is more useful to prop traders or market makers with persistent positions in derivatives. There are other target users but I feel they get less value from SecDB.

In an investment bank, equity cash and forex spot desks (i guess ED futures and Treasury too) have large volume but few open positions at end of day [1]. In one credit bond desk, average trade volume is 5000, and open positions number between 10,000 to 15,000. An ibank repo desk does 3000 - 20,000 trades/day

In terms of risk, credit bonds are more complex than eq/fx cash positions, but *simpler* than derivative positions. Most credit bonds have embedded options, but Treasury doesn't.

In 2 European investment banks, eq derivative risk (real time or EOD) need server farm with hundreds of nodes to recalculate market risk. That's where secDB adds more value.

[1] word of caution -- Having many open positions intra-day is dangerous as market often jumps intra-day. However, in practice, most risk systems are EOD. I was told only GS and JPM have serious real time risk systems.

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