1. Cooperative Brokerage Integration for Transaction Capacity Sharing: A Case Study in Hong Kong Dickson K. W. CHIU Senior Member, IEEE Dickson Computer Systems kwchiu@acm.org, dicksonchiu@ieee.org Anthony C. Y. Lam Dept. of Computer Science Hong Kong University of Science & Technology yuenchi@ust.hk

2. Brokerage Integration Capacity SharingHICSS39-2 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

3. Brokerage Integration Capacity SharingHICSS39-3 System Architecture of AMS/3

4. Brokerage Integration Capacity SharingHICSS39-4 Open Gateway Connection Point

5. Brokerage Integration Capacity SharingHICSS39-5 Client Placing a Request

6. Brokerage Integration Capacity SharingHICSS39-6 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, …

7. Brokerage Integration Capacity SharingHICSS39-7 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)

8. Brokerage Integration Capacity SharingHICSS39-8 TCSS Overview

9. Brokerage Integration Capacity SharingHICSS39-9 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

10. Brokerage Integration Capacity SharingHICSS39-10 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

11. Brokerage Integration Capacity SharingHICSS39-11 TCSS Architecture Partner Brokerage with TCSS / BSS Internet Service Dispatching and Aggregation Transaction Web Services BSS Application Web Services Interface Database SOAP TCSS Process Manager Adaptation Manager TCP/IP ODBC

12. Brokerage Integration Capacity SharingHICSS39-12 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;5 6=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;

13. Brokerage Integration Capacity SharingHICSS39-13 FIXML and SOAP example... ORD_1 1000 EK 1 277461109 20000907.09:25:56 5000 62.5 <SOAP-ENV:Envelope xmlns: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:Body SOAP- ENV:encodingStyle=”http://schemas.xmlsoap.org/soap/encodin g/”> Hopgood Lloyds 41926 IBM 2000 30.00 22:50

14. Brokerage Integration Capacity SharingHICSS39-14 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

15. Brokerage Integration Capacity SharingHICSS39-15 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

16. Brokerage Integration Capacity SharingHICSS39-16 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

17. Brokerage Integration Capacity SharingHICSS39-17 Question and Answer Thank you!