Automated Security Pricing

Market makers in all asset classes need to continuously quote competitive rates. In today’s fast-moving electronic markets, setting prices in the OTC markets requires an automated pricing engine (also known as an auto-quoting system) to adjust quotes based on real-time changes in market conditions. A finely tuned pricing engine can reduce latency in responding to the market and allow you to quote tighter spreads, which ultimately makes you more competitive.

While off-the-shelf pricing engines are available as components within some e-trading platforms, in most cases you can’t get the specific functionality you need without purchasing functionality you don’t. What’s more, these systems provide limited flexibility. In contrast, building a pricing engine from scratch isn’t always a viable option due to the cost and complexity of hiring a team of skilled programmers to develop the solution, in addition to ongoing maintenance expenses and overhead.

The Aleri Complex Event Processing (CEP) platform provides a more practical alternative: the ability to implement a custom pricing engine quickly, without requiring any custom Java or C++ programming. Aleri’s high-level modeling tools allow your users to define the business logic they need themselves, without the help of a programmer. The advantages include:

• Quicker deployment - Reduce implementation time by 60% to 85%, based on estimates from existing Aleri customers.
• Low latency - Adjust quoted prices to reflect movements in the market.
• Higher reliability - Down time means lost business, and incorrect quotes are unacceptable. Aleri is an industry leader in reliability.
• Flexibility and ease of maintenance – Aleri makes it easy to implement and update your own pricing rules.
• Simplified integration – Aleri works with the other elements of your existing system, eliminating the need for major system re-engineering.
• Lower TCO - Our focused, flexible approach lowers your total cost of ownership, including license fees, project costs, and ongoing maintenance.
• World-class support -Our solutions are backed by a company with a track record of responsive customer support and proven domain expertise.

Simplified Integration of Multiple Real-Time Data Feeds

One of the most critical components of a pricing engine is the capability to accommodate real-time market data feeds as input. Aleri provides a comprehensive lineup of pre-built connectors to integrate market data feeds or to work with your existing market data platform.

Aleri’s high level authoring tools include a visual modeling environment that enables users to define their own business rules. You have complete control over data cleansing and validation rules and pricing algorithms. You can also reuse existing algorithms that may already be available as C++ or Java functions via the Aleri user-defined function interface.

Aleri’s pricing logic balances accuracy and flexibility in a three-step process:

1. Cleanse data to ensure that only valid rates feed into the pricing model. This typically consists of a set of validation checks (for example, bid < offer), threshold checks, and checks against one or more moving averages. Rules and parameters may vary by individual instrument.
2. Factor in the price of the underlying security(ies).
3. Compute the price to be quoted, applying spread, market skew, and any other variables. The pricing algorithms can use parameters under the control of a trader to fine tune the algorithms to current market and business conditions.

Additional input to the cleansing and pricing algorithms can include historical data and unique tuning parameters under the control of a trader.

Output in the form of updates to your firm’s prices can be published as a continuous stream onto a message bus, a market data system, or directly into one or more downstream applications. Prices are also available as on-demand snapshots for requesting applications.

Flexible System Configuration

The following diagram illustrates a typical Automated Security Pricing system configuration. In this illustration, the incoming market data is received via a Reuters RMDS system, and the calculated prices are published back onto the RMDS system. Adapters are available for a variety of market data feeds and platforms, and rates can be published onto a market data platform, a message bus, or directly into a downstream application via the Aleri pub/sub API.