When Peter Nabicht started 12Sided Technology alongside Phil Vachon and Chris Casano – respectively the lead engineer and co-founder of the FX hedge fund, AienTech – at the end of 2013, the focus of the company was very different.
Originally, the trio were building pricing and price dissemination technology, but soon found out that firms considered it too risky to consider replacing their matching engines, as any problems with the new technology could lead to days without revenue.
However, firms were impressed by the monitoring system for the matching engine that 12Sided had built, which monitored trading in real-time data on the network.
“We realised that maybe we were selling the wrong thing and perhaps we’d actually developed a different product,” says Nabicht, who now serves as the COO and president of 12Sided.
“So in January 2015, we fully focused on network capture, persistence and analytics. This was something that we’d been thinking about for some time, because there was no solution in the market that kept up with the high levels of data that firms need while providing real-time access to the captured data.”
Indeed, Nabicht says that this was an issue that he ran into while working at high frequency trading firm Allston Trading, with the other programmes available offering only a limited view of this trading data and even then not in real time.
Currently, Nabicht says that 12Sided’s technology is being used in three ways.
In the middle office, he says that firms are using the data captured by the technology to do their trade reports and TCA. The technology can pull in all the orders, acknowledgments, cancellations and rejections and represents that data live, meaning that firms can immediately know what their exposure is and can therefore build risk systems and reporting systems around the data. Additionally, the market data obviously enables them to conduct TCA.
According to Nabicht, the technology is also being used by some firms in the front office to disseminate different flows of data to different trading desks. This means, for example, that a trading desk can analyse the acknowledgement times for trades in real time from every point of connection so they can see who is responding to them the fastest.
“That impacts your trading. Because they can see network responses in real-time, our customers are able to analyse what venues are the best to interact with throughout the day,” says Nabicht.
The third way that he says 12Sided’s technology is being used by customers is on the operational side, as it helps firms to notice network problems as they occur. Nabicht claims that it enables firms to notice spikes in flow and then gives them the forensic capability to look deep down into the network data and see what caused the problem.
Although the technology can be deployed across a range of asset classes, Nabicht says that it is particularly applicable to FX, because of the amount of data that needs to be consumed to effectively trade that market.
“In FX, you’re sending out to anywhere between 30 and 60 end points and then you add in direct connections with other trading desks, ECNs and aggregators – you’ve got data coming in all over the place. If you don’t capture and maintain all of that data and make it easy to use, then you’re going to be at an informational disadvantage to your competitor, you might not be getting the best prices and might not be getting best execution,” he says.
If firms try to integrate this data at each individual trading terminal in each individual blotter and try to make custom logic into their gateway for each individual connection that they have, then they have to spread out their operations into what Nabicht describes as “a support nightmare”.
Instead, 12Sided’s technology is essentially designed to plug into firms’ systems and vacuum up all the data going through them and then make a copy of that. This adds no operational risk and no latency and the firm can access and analyse the data from 60-plus connections in one place, he claims.
“So it’s providing operational efficiency, but more importantly it is a data aggregator that allows firms to analyse their data and activity in the market. I think that this is especially important in FX, because of all the connections that firms need to have in place,” says Nabicht.