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Conquering Fear in Trading

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September 17, 2008

Risk Management? Think EMS

By James Ramage

Portware has embedded risk management controls within the latest version of its portfolio trading application to prevent traders from accidentally auto-executing more shares than they have, among other things.

Portware is used by the buyside and sellside. The enhancements are designed to address the particular risk management-related fears of each constituency.

The buyside, for instance, is afraid of doing something by accident-such as adding an extra zero to an order. The sellside just wants to ensure its traders aren't doing anything illegal-important considering the Société Générale debacle earlier this year.

If a buyside trader is running several EMSs simultaneously for the same 100,000-share order, for example, they might execute 75,000 shares in one EMS and 50,000 in another-essentially executing 125 percent of the order.

In such an instance, the trader might need to scramble over to a different system after the 100,000 hit and manually adjust the order, said Harrell Smith, co-head of the product strategy group at Portware.

"But one of the things we have are some built-in controls that will auto-adjust your orders based on fills that are coming in," he added.

For both the buyside and sellside, Smith added, the tools offer a complete view of risk limits to keep traders honest. The risk controls have strong "permissioning" systems built into the EMS.

"So even if you deploy globally, there's a centralized permissioning interface that potentially will allow you to specify which users can see, or even have access to, various accounts to trade particular stocks," Smith said, "to have access to different liquidity points, to different trading venues."

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