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Risk Management

Overview​

SpiderRock Connect operates an integrated risk management platform designed for large and complex, multi-account equity, futures, and options trading strategies. This platform serves as a comprehensive primary risk monitoring-and-management solution.

The risk management platform consists of the following components that work together to ensure an accurate real-time risk picture for both individual traders and risk managers:

  • SR Risk Servers – Live risk computation and aggregation
  • SR prior-day position-rotation loaders
  • SR and client start-of-day clearing position loaders
  • SR live execution notification – SR execution engines feed directly to SR risk servers
  • Integrated away execution notifications – FIX, SRSE, or MLink upload
  • SRSE SQL API – Live position and risk detail via an SQL-style interface
  • SpiderRock MLink API – Live position and risk detail via WebSocket and REST APIs
  • SR Risk Viewer (RV) – Live symbol-level risk detail
  • SR Risk Manager (RM) – Live asset-level risk, flexible aggregation, and risk span calculations
  • SR Risk Analyzer (RA) – Historical asset-level pivot-table style risk analyzer
  • SR Hedge Tool (HT) – Live symbol-and-expiration-level option hedge basket manager
  • SR ElasticRock – Risk and trading data cluster with quasi-real-time latency (< 5 sec)

This platform integrates seamlessly with SpiderRock Connect's execution systems and can substantially simplify the workflow required to manage and scale complex multi-asset active trading strategies.

SpiderRock Risk and Trading Accounts​

SpiderRock assigns unique account codes (usually 4–6 letters and numbers) for each distinct clearing/trading account handled by the SpiderRock Connect systems. This short account code typically corresponds to a single clearing firm sub-account and is used both when viewing and accessing risk and when executing trades via SpiderRock Connect.

Clients can request creation of as many accounts as necessary to organize their activity. Once accounts are created, clients can control aspects of account configuration, including the account tagging that facilitates flexible aggregation groups and organizational structure.

To request specific account codes or explore alternative account configurations, contact the SpiderRock Client Support Desk.

Start-of-Day Position Loaders​

SpiderRock Connect can directly load start-of-day (SOD) positions from most prime brokers/clearing firms. If so authorized, SpiderRock will arrange for SOD position records to be transferred from a client's clearing firm to the SpiderRock Connect platform and will be loaded automatically. SpiderRock will also account for any corporate action events before a day's trading session begins.

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Clients can typically authorize only those accounts they wish to load into SpiderRock Connect systems. Alternatively, clients can directly load SOD positions via the SRSE SQL API or MLink API if they prefer not to have SpiderRock receive information directly from their clearing firm.

Position Comparison​

Clients can compare SpiderRock Connect's uploaded records against their own uploaded SOD positions to identify possible position breaks such as assignments, exercises, or actual trade breaks. These comparisons can be performed via SRSE, MLink, Risk Viewer, or Symbol Viewer.

Loading Schedule​

SpiderRock Connect loads positions as a client's clearing firm or prime broker makes them available. For NMS equity and equity options accounts, this is typically between 4:00 AM and 7:00 AM CST, Monday through Friday.

On request, SpiderRock Connect can load SOD positions from the previous-day SpiderRock position and trade archive. This is usually done only when a client's prime broker or clearing firm was unable to provide files in a timely fashion—a feature that can be very valuable in emergencies.

View the SodClearingRecordV5 message for table definitions and example queries.

Intraday Execution Drops​

All executions resulting from orders managed by the SpiderRock Connect execution engines are reported to the SpiderRock Connect risk management system as they occur. This includes orders sent to SpiderRock Connect systems via FIX, SRSE, MLink, or the SpiderRock Citrix tool suite.

Additionally, clients can notify SpiderRock Connect of done-away executions either via a FIX drop, the SRSE SQL API, or the MLink API. SpiderRock Connect can also integrate with other execution providers in order to receive real-time done-away execution notifications, typically via FIX drop copy.

SpiderRock Symbology​

SpiderRock Connect systems operate with a unified asset symbology that includes three different asset class keys:

  • Stock Key = AssetType + TickerSrc + Symbol
  • Future Key = AssetType + TickerSrc + Symbol + Expiration
  • Option Key = AssetType + TickerSrc + Symbol + Expiration + Strike + CPFlag

Key Components​

AssetType is a 3-letter code describing the asset class, usually one of EQT, IDX, or FUT.

TickerSrc is a 2–4-letter code describing the issuing authority associated with the symbol. NMS is used for all US equity and equity-option products. Other ticker sources include CME, NYMEX, COMEX, CBOT, ICE, and CFE.

Symbol is usually an exchange or issuing authority ticker consisting of 1–9 letters or numbers. For equities, this symbol is an exchange-issued ticker with special flags appended using the CMS convention (.A, .RT, .PR, PRA, etc.). Equity option symbols are OPRA roots. Futures and options on futures symbols are exchange-issued product codes (ES, ZN, RT, etc.).

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SpiderRock Connect creates synthetic stock keys for all futures and options on futures chains. The symbol portion of these keys starts with @. For example, @ES is the stock key for a synthetic stock object that serves as the root of all ES futures and options.

SpiderRock Connect also creates synthetic stock keys for all multi-hedge settlement baskets. The symbol portion of these keys starts with an underscore (_).

Expiration is a future or option expiration date in YYYY-MM-DD format (year, month, day).

Strike is a decimal number representing the strike price of an option, typically in display-format rather than exchange raw-format.

CPFlag is either Call or Put.

SpiderRock Position, Mark, and PnL Conventions​

SpiderRock Connect's risk systems calculate PnL relative to multiple mark conventions. One convention attempts to mirror the industry standard or official marks for all asset classes, while others provide marks that are more accurate, more stable over time, or more consistent across asset classes.

Mark Conventions​

The main SR mark conventions are:

  • Clearing Firm Standard (CLR) – Usually the official closing or settlement mark, if available. This can be the last trade, a value determined by settlement committee, or the mid-point of the prevailing NBBO quote on close. These marks are product-specific and represent end-of-day marks, but they are not set at the same time for related assets.
  • SpiderRock Synchronized (MID) – Usually the mid-point of the prevailing quote at a single mark time for all related assets. The NMS close time is set to regular day market close minus 1 minute for all equity and equity option assets including ETFs. CME and ICE close times are product-specific.
  • SpiderRock Vol Surface Marks (VOL) – Usually a SR surface volatility price taken at the same time as the MID marks above. These marks are adjusted to fall between the prevailing quote if necessary. This mark set is typically significantly more accurate for equity options than either MID or CLR, in the sense that it is more likely to be both economically realistic and to exhibit less spurious noise over time. These marks are available for assets such as FLEX options that do not have public markets.

PnL Components​

When calculating PnL, SpiderRock Connect typically breaks total PnL into two components:

  1. Open (OPN) PnL – PnL attributable to positions held at the start-of-day
  2. Day (DAY) PnL – PnL attributable to trading activity during the day
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Day rotation times differ by product group. NMS start-of-day is 7:45 PM CST. CME start-of-day is 4:45 PM CST. ICE start-of-day is 5:45 PM CST.

Open (OPN) PnL calculations typically follow this form:

  1. Asset PnL = Position Size × (New Mark − Old Mark) × Multiplier
  2. Aggregate PnL = SUM(Asset PnL)

Where Position Size and Old Mark are established at the start-of-day and are equal to closing positions and marks from the previous day, unless a corporate action has occurred overnight.

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PnL computed in this fashion is an estimate of effective one-day PnL. Simply summing Aggregate PnL over time is unlikely to give an accurate representation of PnL for longer periods of time, as this calculation does not take all account activity into consideration.

To more accurately account for PnL over extended periods of time, the following calculation form is more appropriate:

  1. Initial Asset Value = SUM(Position Size × Old Mark × Multiplier) (as of T)
  2. Final Asset Value = SUM(Position Size × New Mark × Multiplier) (as of T + N)
  3. Trading PnL = SUM(Realized Gains and Losses)
  4. Other Fees = SUM(other account fees including interest and brokerage)
  5. Aggregate PnL = Final Asset Value − Initial Asset Value + Trading PnL + Other Fees

SpiderRock Connect's systems are generally not aware of all these components and do not attempt to replicate this calculation.

Clearing Firm (CLR) Open PnL​

SpiderRock Connect clearing firm PnL indicates how assets held at the start-of-day have performed.

  • Asset Position Size – Clearing firm start-of-day position (can be corporate-action-adjusted)
  • Old Mark – Clearing firm start-of-day mark (can be corporate-action-adjusted)
  • New Mark – SpiderRock mid-point mark

Most (but not all) clearing firms apply corporate actions by the time SpiderRock Connect receives start-of-day positions from them. For clients directly loading positions and marks, these values will be as uploaded.

SpiderRock Synchronized (MID) Open PnL​

SpiderRock synchronized PnL indicates how assets held at the start-of-day have performed when using marks that are fully synchronized.

  • Asset Position Size – Clearing firm start-of-day position (can be corporate-action-adjusted)
  • Old Mark – Clearing firm start-of-day mark (can be corporate-action-adjusted)
  • New Mark – SpiderRock mid-point mark
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Synchronized marks are taken slightly before the official close, at the same time for all assets in a category. This can significantly improve mark quality when the official mark derives from a quoted market and the quotes in question are being pulled at the end of the day. Additionally, these marks can synchronize ETF and index-based marks, avoiding the time-mismatch issues inherent to some products.

SpiderRock Surface Mark (VOL) Open PnL​

SpiderRock surface mark PnL provides a more accurate measure of asset value and PnL for portfolios containing options, especially when the options in question are relatively wide and/or inconsistently marked.

  • Asset Position Size – Clearing firm start-of-day position
  • Old Mark – Prior period closing SR surface mark (options) or SR mid-point mark (equities and futures)
  • New Mark – SpiderRock live SR surface mark (options) or SR mid-point mark (equities and futures)

SpiderRock Connect is continuously fitting the option implied markets with a constrained spline to produce a per-symbol-expiration surface. For almost all markets, these constrained spline surfaces ride between live market bids and offers and can be used to create a mark more representative of true value than the mid-point of individual market bids and offers.

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For very tight markets (1 or 2 ticks wide), SpiderRock Connect uses mid-market values rather than surface marks. Also, when a SpiderRock surface is at or outside of a bid-ask market, the actual market (bid + ½ tick, ask − ½ tick) is used rather than the surface mark.

SpiderRock surface PnL is typically more accurate and less noisy over time than corresponding PnL based on traditional mid-market marking techniques. For example, for common US equity option portfolios, SpiderRock surface PnL can exhibit a 25%+ reduction in day-over-day PnL standard deviation.

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Equity start-of-day marks will not equal top-of-day prior period marks if a corporate action has been applied to positions and marks between top-of-day and start-of-day. Most (but not all) clearing firms apply corporate actions by the time SpiderRock Connect receives start-of-day positions from them. For clients directly loading positions and marks, these values will be as uploaded.

Multi-Hedge Option Handling (Equities)​

Equity options that settle into multiple stocks receive special handling within SpiderRock Connect's systems. First, a synthetic stock ticker is created for the settlement basket. By convention, this ticker is the multihedge option root preceded by an underscore (_).

SpiderRock Connect publishes live synthetic prices for each settlement basket as component quotes change and prices the corresponding multihedge options using these synthetic settlement basket markets. PnL and greeks (including delta, vega, gamma, and theta) are then aggregated from option position records (root) into symbol risk summary records (_ + root). These same values are also proportionately allocated from (_ + root) symbol risk-summary records to basket component symbol risk-summary records.

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When examining the set of symbol risk summary records, total account PnL and greeks equals the aggregation of all records except records whose ticker starts with _, because the risk from these records will have been allocated to records whose symbols do not start with _. Including the _ records in the aggregation will double-count multi-hedge risk and PnL, if any exists in an account.

SpiderRock Hedge Delta Computation​

SpiderRock's symbol risk-summary records contain a hedge delta field that represents market exposure to the stock (equities) or front month future (future product groups).

By default, hedge delta is the delta corresponding to the SpiderRock surface volatility for the option in question. If no SpiderRock surface volatility exists, mid-quote volatility is used instead.

The definition of hedge delta can be modified as follows:

  1. For options with fewer than Binary Days to expiration, force delta calculations to [-1, 0, +1] (or ±0.5 if the underlier quote is straddling strike)
  2. Use a delta derived from a client-uploaded theoretical surface volatility instead of SR surface volatility
  3. Include a VeSlope (surface slide) term derived by assuming SR or client surfaces slide left/right with the underlier. This is sometimes called sticky-delta hedging as opposed to the default sticky-strike hedging

Contact the SpiderRock Client Support Desk for help configuring hedging behavior as needed.

Risk Management Citrix Tool Suite​

SpiderRock Connect provides a comprehensive collection of risk GUI tools for analyzing account and strategy risk and for hedging or modifying account risk profiles.

SR Risk Viewer (RV)​

This tool provides easy visibility of symbol, industry, expiration, and account aggregate details in a live-monitor format. Features include:

  • Symbol-level positions and break details
  • Greek and standardized slide risk
  • OPN PnL details including greek attribution
  • DAY PnL including T+1m and T+10m as well as DeltaNeutral measures
  • TheoEdge details including prior-day edge performance metrics
  • Facilities for managing early exercise and pin risk

Read the Risk Viewer guide →

SR Hedge Tool (HT)​

This tool is a live symbol-level hedge basket manager that can substantially automate the process of computing appropriate portfolio hedging baskets for complex option positions. It can target trades done today, start-of-day positions, or both. The tool includes options for setting hedging bandwidth targets and can be scheduled to run repeatedly during the trading day or selectively as needed.

Read the Hedge Tool guide →

SR Risk Manager (RM)​

This tool provides full live asset-level detail and allows flexible aggregation along multiple dimensions. It is suitable for viewing and managing risk in a single account or across groups of accounts. Features include:

  • Risk aggregation – Client Firm, Account, Symbol, Expiration, Industry, Skew Bucket, iVol Range, User View Groups, etc.
  • Custom-span slide calculation – Custom slide levels and configuration (Pct or Log, StickyStrike or SlidingSurface, Simple or Beta or VolRatio Adjusted, StdDev adjusted, etc.)
  • Exchange standard-span slide calculations – Based on exchange span parameter files
  • Flexible-span slide aggregation – Similar to risk aggregations; can be used to get portfolio risk insight for complex portfolios when used in conjunction with custom-span calculations
  • Greek slides – Delta, Gamma, Vega, and WtVega greek slides for all span calculations
  • Risk Macro tool – Highly configurable integrated market scanning tool that can automatically generate portfolio-wide risk opening and/or closing orders. Can be used globally for groups of accounts or locally, based on selected risk context

Read the Risk Manager guide →

SR Risk Analyzer (RA)​

This historical asset-level pivot-table style tool is useful for analyzing risk details over time. It typically offers the ability to view and access 90 days of historical risk data in a fast and flexible manner.

Read the Risk Analyzer guide →

FLEX Positions​

SpiderRock Connect supports FLEX positions. Clients can upload start-of-day clearing records that include FLEX Options, and SpiderRock Connect will accept FLEX positions entered via a parent order message.

In the SpiderRock Connect system, FLEX options are marked by having a route that begins with a number. FLEX multi-hedge options have routes that start and end with a number. The number indicates the exercise type and AM/PM settlement:

ValueStyleSettlement
1AmericanAM
2EuropeanAM
3AmericanPM
4EuropeanPM

Example: A FLEX o_tkey of 1AAPL indicates an AAPL contract with American exercise type and AM settlement.

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Asian and Cliquet options are not currently available.