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Deutsche Börse Systems Builds the First Risk Management Platform with Red Hat Enterprise MRG Messaging and the Open Standard AMQP
March 3, 2010
Customer: Deutsche Börse Systems
Create a new client interface for a real-time transaction risk information system of the leading European clearing house, Eurex Clearing, based on open standards
Red Hat Enterprise Linux 5, Red Hat Enterprise MRG Messaging with AMQP
End customers, mainly banks, get immediate access to valuable risk management data directly from Eurex Clearing’s back-end systems without the need of customised adaptors. Deutsche Börse Systems can now focus on key operational tasks, leaving ongoing support of the AMQP-based messaging system to Red Hat.“We decided to implement Red Hat Enterprise MRG Messaging with AMQP because we favour open standards and we want to make it as easy as possible for our client banks to access the relevant risk data. Using the open standard AMQP helps to avoid complex and time-consuming development of customized adaptors and gives customers freedom of choice for vendor selection.” – Gerhard Lessmann, member of the Executive Board, Deutsche Börse Systems
Deutsche Bandouml;rse Group includes Deutsche Bandouml;rse AG, a DAX company and one of the worldand#x2019;s largest exchange organization, and its wholly-owned subsidiaries Clearstream International S.A. and Deutsche Bandouml;rse Systems AG. The key markets within the Group are the Frankfurt Stock Exchange, one of Europeand#x2019;s largest stock exchanges, and Eurex, one of the largest derivatives exchanges in the world. The International Securities Exchange ISE is a wholly owned subsidiary of Eurex. Eurex itself is operated by Deutsche Bandouml;rse AG and SIX Swiss Exchange AG. Together, Eurex and ISE are the global market leader in individual equity and equity index derivatives. Eurex Clearing is the clearing organization of these markets. As a leading technology service provider in the financial sector, Deutsche Bandouml;rse IT offers its customers outstanding reliability, speed, innovative ability and cost efficiency. Within Deutsche Bandouml;rse IT, Deutsche Bandouml;rse Systems AG is a service provider for the development and operation of IT systems. Deutsche Bandouml;rse IT provides a large part of its services to other segments within Deutsche Bandouml;rse Group. In addition, as an operator of other international exchanges and by acting as a sourcing partner, it offers a wide range of solutions to optimize the processes and systems of financial service providers.
The global financial crisis of 2008/2009 has brought fundamental changes to financial institutions and trading organisations. All players, be it banks and private investors or national and international regulators, are looking for new ways to discover, track, and manage transaction risks. The ultimate goal is to prevent a meltdown of a similar scale from happening again.
Exchange organisations like Deutsche Börse and its derivatives exchange Eurex hold a key position in the global landscape of financial services. They enable trading e.g. between banks and take care of transaction clearing through its subsidiary Eurex Clearing.
Eurex Clearing acts as a buyer to all sellers and as a seller to all buyers thereby minimizing counterparty risk and maximizing operational efficiency. This process, of course, is a fully electronic process. As derivatives trading involves due dates, often weeks or even months ahead, it is also within the responsibility of the clearinghouse to assess the default risk of its clearing members.
“In essence, it’s Eurex Clearing’s job firstly to monitor the risk exposure of its direct members, but secondly as well as to support the direct members to control their clients (e.g. the non clearing members). In order to do so it is essential for them to have at any time a complete view on positions and risk exposure” said Gerhard Lessmann, member of the Executive Board at Deutsche Börse Systems. “In order to make it easier for our client banks to access this information, we decided to build a new service called Enhanced Risk Solution. The goal was to provide near real-time access to all data relevant to risk management.”
Speeding up the delivery of risk management data to Eurex clients meant moving from encrypted e-mail to a new system that would provide a secure yet fast interface between the Eurex backend systems holding the relevant data and the clients’ own risk management systems. Up to now, risk management information is available to client banks every ten minutes, delivered as a file via encrypted e-mail. The downsides of this solution were quite obvious: it was quite slow and required special decryption equipment on the client’s side and a manual transfer of the data into their own risk management applications.
The new Enhanced Risk Solution will eliminate unnecessary steps from the process and automate data transfer while maintaining the highest security standards.
When dealing with data transfer of this scale, the requirements on the part of IT were two-fold. On the content level, a data format needs to be agreed upon. In the financial services industry, a variant of XML called FIXML (Financial Information eXchange Markup Language) is the lingua franca as defined by the industry organization FIA/FOA post trade standards. On the transport level, the data needs a “wrapper”, also called a messaging protocol. Both sender and recipient have to use the same protocol in order for the software to understand what exactly is being exchanged.
At present, there is no singular standard messaging protocol for business environments. However, there is a rising open standard called Advanced Message Queuing Protocol (AMQP). As a consequence, Deutsche Börse Systems had to make a decision on whether to develop a custom protocol and ask client banks to adopt it or to deploy a product of a specific vendor with a proprietary protocol, or to use the relatively new AMQP standard.
AMQP is an open standard for messaging middleware and is designed for use in demanding business environments. The protocol was specified and is being finalised by the AMQP Working Group, an industry association sponsored by leading software vendors and financial services companies. Both Red Hat and Deutsche Börse Systems are members of the AMQP Working Group.
“We could have gone down the route of building our own messaging protocol for the new risk management platform. We have done it before and seen good results,” said Dr. Andreas Moravec, director of Application Development Middleware at Deutsche Börse Systems and the company’s representative in the AMQP Working Group.
“But with a longer-term view in mind, we decided to go for open standards and AMQP for two reasons. First, it makes it a lot easier for our clients to connect with the messaging broker system that sits in between their risk management systems and our backend. There is no need for the banks to create customised adaptors,” said Dr. Moravec. “Second, we will experience much less pressure on our internal support resources because we can entrust Red Hat with supporting the broker system. It runs on Red Hat Enterprise Linux and Red Hat Enterprise MRG has AMQP already built-in,” Dr. Moravec continues.
Red Hat Enterprise MRG, including Messaging, Realtime and Grid technologies, is designed for demanding high-performance IT infrastructures. The messaging system in Red Hat Enterprise MRG provides an extremely high-performance, open source implementation of the current version of the AMQP open standard business messaging protocol.
Deutsche Börse Systems is currently developing the new customer interface to the risk management system and is planning to roll it out in early 2010. In the development phase, Dr. Moravec’s team is taking advantage of MRG being an open source system and is modifying and creating libraries to meet Deutsche Börse Systems’ requirements to run its backend systems for risk management on legacy OpenVMS systems.
The library modifications will be made available back to the open source community. Red Hat helps Deutsche Börse Systems in this process. “We very much value the principles of open source development as they spawn high-quality software and make it available to all. As a member of the AMQP Working Group we’re dedicated to giving the open source community back as much of our insight as possible,” said Dr. Moravec. “Red Hat is an excellent partner in this process.”
Deutsche Börse Systems is one of the early major financial services organisations to implement AMQP in a highly sensitive business environment. The strategic decision in favour of an open standard brings several benefits to the IT organisation and the clients of Eurex.
It speeds up development as the application development team of Deutsche Börse Systems can draw upon freely available AMQP libraries, investing only in the adaptation of these for legacy OpenVMS systems. During development, testing, the simulation phase with clients as well as later in day-to-day operations, Deutsche Börse Systems can rely on Red Hat’s experience and support, freeing up internal resources for other tasks.
“In addition to the risk management system, we are in the process of building an entirely new trading platform for Deutsche Börse Group, based on Red Hat Enterprise Linux and Red Hat Enterprise MRG,” said Gerhard Lessmann, DBS. “In this context it was a logical decision to work with Red Hat also for our risk management project. We always work to keep our IT operations focused on their core tasks and to minimise support workload on the team. Having Red Hat support readily available as a single point of contact is an excellent way to achieve just that.”
Banks using the Eurex derivatives trading and clearing platform will benefit from up-to-the-second access to risk information that can help to discover, rate, and track risk associated with individual trades as well as the overall investment strategy more quickly. As AMQP is an open standard, it will be much easier for the clients’ IT departments to connect their own risk management systems with Eurex’s broker interface.
“I’m confident that the messaging system for our real-time risk management platform will prove that open standards are ready to be applied to demanding IT infrastructures in the financial services industry,” said Dr. Moravec. “Our support for the AMQP Working Group and our dedication to open source in conjunction with our partner Red Hat will have positive effect on the entire financial services industry in the future.”