While the industry waits for regulators to provide more direction on clearing and high frequency trading, Cinnober Financial Technology is moving forward with a high-speed risk calculating clearing solution. MarketsWiki’s Jessica Titlebaum sat down with Nils-Robert Persson, Cinnober’s executive chairman, to discuss the firm’s clearing initiatives as well as his favorite pastimes and what he likes to cook for dinner.
Q. You have been at Cinnober for about 12 years now. Are there any business decisions that changed the course of direction for Cinnober?
The toughest decision Cinnober ever made was when we were an extremely small company. We were asked by AMEX to help develop a prototype for an options trading system. They were extremely happy with what we provided them and wanted us to develop the system. It was one of the largest systems we had to develop and we were only nine people at the time. They were happy with the result but did not ask how big we were. We needed to be 50 employees by the end of the year to meet the exchange’s expectations. I don’t think they realized how small we actually were. There were a lot of internal discussions at Cinnober but I convinced my colleagues to say yes. We built the system and were up to 50 employees by the end of the year. Four years later we were awarded the fastest growing company and it was dependent on that project.
We proved ourselves with AMEX and we were a key supplier for them for ten years. We wouldn’t be where we are today without that project. I use to say that the decision to dare to take onboard that assignment is the single most important business direction we’ve taken – at least until recent times when we decided to also enter the awakening niche of innovative clearing technology.
Q. You have extensive experience with clearing systems. How did you get into this part of the industry?
I have an IT background and worked at the Swedish Investment Bank, SEB, in the early 1980’s focused on FX trading systems. I worked on the market data side for about 5 years before moving over to the OMGroup, where I was deputy CEO for about 9 years.
I was involved with a few clearing initiatives back then. I was managing a project in 1991 that looked to serve the OTC markets. At the time, the bond futures market was very large based on huge government debt. It was bilateral and unstable market. The bond contracts were traded interbank and cleared physically at one of the banks. Their clearing services took place in meetings the banks held every day where they exchanged checks and physical pieces of paper. While at OM, we introduced a clearing service that eliminated the risk inherent in the bank’s process. A lot of the clearing houses were very suspicious of our clearing solution and said that we were in bed with our enemies! However, the clearing solution was a huge business area for us in the 1990’s especially in the bond and Treasury bill markets.
Q. You were a member of the European Association of Clearing Houses (EACH). What is that exactly?
I was a member of this organization in the 1990’s but you have to be a member of a clearinghouse to be associated with EACH. When I left OM, I lost my membership. Clearinghouses are dependent on each other. They have to trust each other because if there is a failure in the market, they need to inform one another immediately and strategize around how the government will react. This organization is very good at getting everyone to collaborate and if something happens, they can immediately react.
Q. Can you tell me about Cinnober’s clearing solution?
In the summer of 2008, Cinnober had a lot of internal discussions about clearing. We were at a crossroads. We had sold our trading system to a lot of exchanges and we had to split our business to find another track. We investigated what that track should be.
A high frequency trading (HFT) firm approached us about risk calculation. These calculations have to be done at an extremely fast speed and they have to be done accurately. The HTF firm would like to have figures to compare with in real time because their system can destroy the whole company in a few seconds It was a huge investment for us but it’s proved very successful. It can be used for pre-trade risk calculation as well as at trade risk calculation in true realtime.
Q. How does it work with the rest of your technology?
All of our technology is based on our TRADExpress platform. Our customers don’t like buying something out of the box. They want their own customizable solution so we decided to build a model that we can always customize on top of our platform. The clearing system is built on the same platform as the trading system.
Q. How fast can you calculate the risk?
We will release the figures early next year. We offer our customers a way to enter an order, calculate that risk and find out how much the risk will increase as well as check if they have collected enough margin without delaying the order. It will all happen in less than one millisecond.
Q. Where are your offices?
We only have one office in Stockholm and that is one of the secrets behind Cinnober. We decided that the sales team has to work very closely with the development team. This is to ensure that the sales team is never selling something that the development team cannot develop. The development team has to work extremely close with the support team so the development team cannot develop something that is hard to support. And the only way to do that is to say the development team must support the new technology for the first six months.
For most companies, signing and acceptance of their technology is most important. For us, the production is so important and the only way to do that is to have all our teams working together and closely. So we are traveling a lot.
Q. Where is your favorite place to travel to?
I enjoy going to my cottage in the north part of Sweden. We have had the cottage for many years and my family goes there in the winter. I like to meet people, but I really don’t like traveling privately – I traveled for more than 100 days a year for 25 years.
Q. If you weren’t in this industry, what would you be doing?
I would be a chef or a sports journalist. I cook a lot on weekends and love Japanese cuisine. I also started to look at South American recipes.
Also, I have always been interested in sports, specifically individual sports. I used to run marathon and orienteering. I used to run every day, maybe 150-200 kilometers per week. I might have been a little extreme about running but you produce endorphins, which puts you in a good mood. I was addicted to running, no doubt. It is the best time to think and clear your mind. I think of new ideas and solve problems while I am running. You can come up with new ways to approach challenges during that time too.
I have been walking from the office to my home once a week since a couple of years while I am not traveling. It usually takes about three hours and is very relaxing.
Q. Throughout your career have you ever had any mentors or someone that you modeled your career after?
I think the answer is no because I was never thinking about the next thing. I believe that everything is coincidence. You have to be in the right place at the right time. I am very lucky to have been in the right place at the right time.