©2013 Software AG. All rights reserved. Dr John Bates CTO, Software AG 12 th November 2013 Turning Market Crisis into Competitive Advantage The Clue’s in the (Fast) Big Data

©2013 Software AG. All rights reserved. For internal use only 2 | Agenda Recurring Crises in Capital Markets The Consequences Just Keep Getting Bigger “Unwanted Behaviors” Examples from: Market Abuse & Manipulation Rogue Trader Detection Pre-Trade & Rogue Algorithm Checks Kill Switches & Circuit Breakers New Paradigm & New Technology

©2013 Software AG. All rights reserved. For internal use only 3 | Recurring Crises in Capital Markets Market manipulation Ever-evolving regulation “Fat Finger” trading errors Rogue traders Wild algorithms

©2013 Software AG. All rights reserved. For internal use only 4 | The Consequences Just Keep Getting Bigger Trading Losses Regulatory Fines Reputational Damage Credit Rating Insolvency! The End of HFT?

©2013 Software AG. All rights reserved. For internal use only 5 | Control Failures are all examples of “Unwanted Behaviors” Crisis can come from anywhere, anytime, on anyone's watch!! High touch or low touch trade flows By clients or staff Pre-meditated or accidental Breach regulation or simply internal policies Be labelled as Risk or Compliance All “Unwanted Behaviors”

©2013 Software AG. All rights reserved. For internal use only 6 | Trading technology is about behaviors too! Uncovering market behaviors in Big, Fast Data and profiting from them… Complex Event Processing In Memory DB / Data Grid Fast Messaging Visual Analytics Real-time market data Connect Capture Store Historic Analytics / Alpha Discovery To find interesting potential abuse patterns Real-time analytics To spot an abuse pattern as it happens Algorithms/Actions Real-time decisions on when and how to categorize & report an abuse pattern Visual Analytics Visualize abuse patterns

©2013 Software AG. All rights reserved. For internal use only 7 | Mismatch Between Trading Technology and Risk & Compliance Technology VS.

©2013 Software AG. All rights reserved. For internal use only 8 | Mismatch Between Trading Technology and Risk & Compliance Technology A Ferrari to catch a Ferrari

©2013 Software AG. All rights reserved. For internal use only 9 | Unwanted Behavior Detection Can Utilize Lessons Learned from the Trading World… Real-time market data Connect Capture Store Historic Analytics / Alpha Discovery To find interesting potential abuse patterns Real-time analytics To spot an abuse pattern as it happens Algorithms/Actions Real-time decisions on when and how to categorize & report an abuse pattern Visual Analytics Visualize abuse patterns Complex Event Processing In Memory DB / Data Grid Fast Messaging Visual Analytics

©2013 Software AG. All rights reserved. For internal use only 10 | Visual Analytics / Alerting Market Abuse & Manipulation Market Data , Social Media etc Trade Data Order Data News “Behavior” monitoring Faster decision making for better business with instant action on real-time insights Fast access to large and varied data sets RegNMS, Market Abuse Directive Insider trading Front Running Layering Quote Stuffing Go Wash Trades

©2013 Software AG. All rights reserved. For internal use only 11 | Market Abuse & Manipulation Market Data , Social Media etc Trade Data Order Data News “Behavior” monitoring Faster decision making for better business with instant action on real-time insights Fast access to large and varied data sets “When a buy and sell trade occur within any 500 millisecond window for the same instrument by two different firms and volumes and price are within 1%, signal a Go alert.” Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 12 | Market Data , Social Media etc Trade Data Order Data News “Behavior” monitoring Faster decision making for better business with instant action on real-time insights Fast access to large and varied data sets “If a trade occurs for an instrument not usually traded by that trader or it is unusually large for that trader and a related news article occurs within 5 minutes which moves the market by > 10% within 30 minutes, signal a Insider Trading alert.” Market Abuse & Manipulation Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 13 | Rogue Trader Detection HR Data Physical Access Data Trade Data Settlement & Clearing Calendar Data “Behavior” monitoring Fast access to large and varied data sets Faster decision making for better business with instant action on real-time insights Guidelines on Unauthorized Trading Checks on Cancels/amends Unusual profits Unusual hours Vacations Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 14 | Rogue Trader Detection HR Data Physical Access Data Trade Data Settlement & Clearing Calendar Data “Behavior” monitoring Fast access to large and varied data sets Faster decision making for better business with instant action on real-time insights If number of cancel/amends for a trader is greater than 2 times that of peer group over the same period then signal Unusual Concentration of Cancellations alert Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 15 | Pre-Trade & Rogue Algorithm Checks Trading Venue(s) Pre-Trade Risk Firewall In-house Execution Algos Instant action on real-time insights, enabling faster risk controls Ultra-fast access and messaging capabilities DMA Sponsored Access Regulating automated flows (DMA etc) Checks on Price Volume Order:Trade Event rate Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 16 | Pre-Trade & Rogue Algorithm Checks Trading Venue(s) Pre-Trade Risk Firewall In-house Execution Algos Instant action on real-time insights, enabling faster risk controls Ultra-fast access and messaging capabilities DMA Sponsored Access If order quantity is greater than 2 times the average traded volume for the instrument then signal Unusual Order Quantity alert Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 17 | Panic button Kill Switches Pre-Trade Risk Firewall In-house Execution Algos Instant action on real- time insights, enabling faster risk controls Ultra-fast access and messaging capabilities DMA Sponsored Access Trading Venue(s) Visual Analytics / Alerting Exchanges & Broker/Dealers Capability to: Cancel all open orders Block all new orders Auto-hedge partially executed spreads

©2013 Software AG. All rights reserved. For internal use only 18 | Panic button Smart Kill Switches Pre-Trade Risk Firewall In-house Execution Algos Instant action on real- time insights, enabling faster risk controls Ultra-fast access and messaging capabilities DMA Sponsored Access Trading Venue(s) On Unusual Order Quantity alert, block all new orders from that algorithm, cancel all pending orders and signal a Potential Rogue Algorithm Alert. Request manual intervention to unblock algorithm Visual Analytics / Alerting

©2013 Software AG. All rights reserved. For internal use only 19 | New Paradigm Platform Requirements Mobile people & devices Hadoop & Data Warehouse Financial Events Social Media Events System alerts, sensors & machines Real-Time Analytics & Intelligent Action Low Latency Universal Messaging Real-Time Visual Analytics In-Memory Data & Analytics Cloud $ £ € ¥

©2013 Software AG. All rights reserved. For internal use only 20 | Fast Big Data Platform Real-Time Analytics Universal Messaging In-Memory Data Visual Analytics PRESTO Stream Big Data to/from any platform or application! Act fast to limit damage! Enrich Real-time analytics for more effective monitoring! Greater visibility & insight! A common behavioural monitoring platform to identify all unwanted behaviours from big fast data Flexible platforms offer hybrid of Buy and Build! Open IT platforms do more with less!

©2013 Software AG. All rights reserved. For internal use only 21 | Investigative tools to analyse behaviour in context of the market

©2013 Software AG. All rights reserved. For internal use only 22 | News event seems to precede a market down turn