5 considerations when selecting an Exchange Test Simulator

National authorities and market participants are enjoying a one-year reprieve before the full force of MiFID II comes into effect. Ensuring sufficient preparation time for the implementation of complex technical infrastructure and related system changes to accommodate the new rules, is the rational for the 12-month extension.

Among the key elements of MiFID II, is the requirement for investment firms, including buy-side users of direct market access to undertake annual reviews of their trading systems and algorithmic trading operations. Compliance staff are required to understand how the algorithms are intended to operate and must have access to kill functionality at all times. Not surprisingly, there is significant focus pertaining to development, governance, methodology, environments, conformance and stress testing.

As a consequence, many investment firms are looking to bolster their processes by integrating a vendor exchange simulator as a core component of testing governance. Neueda Consulting has put together some key considerations to contemplate, when selecting a vendor exchange simulator:

  1. Does the simulator have the ability to replicate the behaviour of numerous exchange platforms and native order entry and market data protocols? e.g. FIX and native binary protocols.
  2. Does it support multiple order types? e.g. Market, Limit, Imbalance, Iceberg and Pegged
  3. Can it provide a controlled environment in which clients can construct complex market scenarios and execute them in a repeatable manner? Can they be incorporated into development and testing processes to ensure and improve software quality?
  4. Can it simulate rare corner cases such as broken trade messages? Is it possible to easily augment the message flow to permit this?
  5. Cloud versus On Premise? Is the simulator lightweight and capable of sitting within a developer’s virtual environment? Equally can it be deployed on a high performance server to meet stress testing requirements?

For more information about selecting multi-asset exchange simulation tools, please reach out directly via inMail.

Malachy O’Neill is Head of Capital Markets for Neueda Consulting www.neueda.com, a privately owned IT consultancy and software development company. Founded in 2006, Neueda recently gained recognition for rapid growth, when shortlisted for the 2015 Deloitte Technology Fast 50 Awards. The company partners with global investment banks, exchanges, brokers, proprietary trading and market making firms, delivering custom software development projects, pertaining to market data, order routing, risk and algorithmic trading frameworks.