by Bari Trontz
@ DTCC recently sat down with Citadel’s operations directors, Philip Vandermause and Kevin Patula, to talk about their firm’s experience integrating DTCC’s Universal Trade Capture (UTC) service into Citadel’s post-trade equities operations. (See page 6 for a description of UTC.)
With UTC, Citadel has realized significant benefits, including greater operational efficiencies, reduced risk and cost savings, according to Vandermause and Patula. For example, during recent volume spikes in trading activity, UTC allowed Citadel’s team to real-time trade match on T+0. Ultimately, this has allowed Citadel team members to focus on more strategic initiatives.
The Citadel technology team played a critical role in combining UTC with the company’s existing system, managing the coding and development of the integration. Vandermause and Patula emphasized that the team’s expertise was an essential ingredient for building Citadel’s state-of-the-art platform for post-trade equities processing.
How long has Citadel been using UTC?
Vandermause: We went production parallel in July 2011, using both real-time UTC FIX messaging and traditional batch file processing. In September 2011, we turned off our batch file processing.
Patula: When volume spiked in August, even though we were in parallel, we were using the UTC feeds to resolve most of our breaks. Our August internally posted transactions were up about onethird over our normal monthly average and, externally, we saw an increase in submissions of about two-thirds over our monthly average. The UTC messaging enabled us to handle these surges and we were able to process and resolve any breaks quickly and efficiently.
How does Citadel use DTCC’s UTC platform?
Patula: We implemented the UTC platform into the proprietary matching technology and software that Citadel’s technology group developed. We use UTC as a tool to monitor real-time, T+0 submissions coming in from NSCC and to match that data against trades posted to our system throughout the day. We also use it to submit our correspondent clearing trades to NSCC.
Why did Citadel sign up for UTC?
Vandermause:What caught our eye about UTC was the ability to access information on T+0. When you look at operational risk in the equities space, you want to be able to shorten your risk to the counterparties as well as to the clearing corporation. One way to do that is to make sure your trades are aligned with all three parties via the matching process.
When you look to the future, to accelerated trade guarantees [ATG] and other industry developments, we see UTC as an important component to effectively manage our collateral requirements.
What were the steps you took to implement UTC into Citadel’s system?
Patula: Once we identified the benefits of the additional T+0 real-time processing that UTC offers, we discussed it internally and prioritized the mandate. We specified each module that we needed to build to clear across all exchanges and reporting lines. We worked with our developers and business users to create a tool that matches and filters down to display any breaks.
During this period, we worked on design and code writing. Once we had something scalable, we began testing with DTCC’s test program, working closely with the DTCC team for a few months while rolling out each module.
Has Citadel fully incorporated UTC into its downstream processing?
Patula: Yes. We now use the messaging that comes through UTC to build our reporting, which helps us balance our open obligations with the clearing house. This data is used for top-day reconciliation and controls, and is also leveraged by our independent reconciliation and control functions.
Vandermause: We found value in listening to the real-time UTC messaging on T+0 and combining that with other settlement-date open obligations. This data provides a constant, complete picture of your open obligation with NSCC. We can calculate, in near real time, our collateral requirements at the clearing house. We plan to leverage these views to compare with NSCC when ATG comes online in the near future.
Why was your preference for FIX over MQ versus FIX over FIX engine?
Vandermause: As we made this decision, we considered our core infrastructure. We prefer messaging over files. We leverage various messaging standards over multiple communication lines with exchanges, counterparties, depositories and other brokers. So when that option was available, it made a lot of sense for us because it fits with how we operate our business.
How did you bring employees up to speed with UTC?
Vandermause: Citadel leverages operations staff to design and test systems in close working partnership with our technology team. The teams that monitor and manage our UTC process are the same individuals who designed it, so they know it better than anyone. This is a model we leverage throughout the firm with much success.
Patula:An important consideration was how to train people to live in a realtime environment. Early on, we’d run our DTCC reports to do our balancing and there might be breaks on those reports. When we went into the system to investigate a break, it would be gone, because something happened between the time the report ran and the time we were doing the investigation. Being able to fix things on a real-time basis was key to getting our team onboard UTC.
Has UTC’s ability to unify a fragmented equity market structure helped Citadel’s posttrade processes for equities?
Patula: I would definitely say it has unified the exchange and OTC flow. Via UTC, we see our executions reported to our back office within seconds of execution. Having this data in real time allows us to see any issues more quickly than file-based processing allowed. This presents a better operational model and better experience for our clients.
With an industry focus on risk reduction and cost savings, does UTC help Citadel meet these goals in terms of its equity post-trade activity?
Vandermause: Absolutely. From a risk reduction aspect, we see the vast majority of our trades matched on T+0 before we go home on trade date. Because we have transparency on T+0, we can move to other oversight functions during the lifecycle of the trade. As far as cost savings, we have been able to decrease our fail rates and operational errors, which reduce charges associated with these issues. And ultimately we have more time to focus on strategic initiatives without increasing head count.
Have the additional data elements on the new UTC output and realtime feeds enhanced your trade reconciliation process?
Patula: The real-time feeds are the biggest benefit. We strive to live in a real-time environment across all of our systems. Our goal is to confirm trades as close to the point of execution as possible. By 6 p.m. CST we are 99% matched on all of our trades, and we know when we go home whether or not there is an issue. When trading starts the next day, we can assure our traders that everything they have in the system is accurate, they are trading off matched positions and we have a clear view into the clearing world. @