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Crash Test: Stevens Builds a New Tool to Probe Financial Markets for Potential Dangers

12/14/2015

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Hoboken, NJ - The days of open trading pits and frenzied brokers waving chits of paper have disappeared over the last decade or so, swiftly replaced by electronic markets and algorithmic trading. Ever since, regulators and practitioners have raced to keep pace with ever-more rapid changes in trading technology. Now CME Group Foundation  — the philanthropic arm of the largest exchange in the world — has awarded Stevens Institute of Technology a contract to perform a series of financial research projects that may reshape the way federal regulators prepare for electronic trading events. The research will not only help spot illegal trades; it will also help both researchers and agencies stay abreast of the tremendous quantities of routine automated trading activity happening daily at light speed.
"Things have changed, and very quickly," says George Calhoun, director of Stevens' Financial Systems Center and the university's pioneering undergraduate program in Quantitative Finance. "Finance is becoming a hard science, as technical as chemistry or biology. Systems are vulnerable, and markets and regulators need to get out in front of this as quickly as they are able."

That's where Stevens comes in.

The CME Group Foundation-sponsored suite of four projects includes an investigation of applications of quantum computing to complex financial problems; the creation of the world's first high-frequency finance journal, which will be based at Stevens; and support for the university's annual October high-frequency finance conference, the largest such conference in the world.

One of the most exciting components of the Stevens-CME collaboration is sHiFT: an ambitious effort to build a new simulation platform, from scratch, that will run real-time market data and introduce actual high-speed trading scenarios into the market flow to test global markets and exchanges for weaknesses and vulnerabilities.

"There's simply no tool like this currently available for regulators and researchers," says Calhoun. "Its scope will be broad and the platform will run live market data from all markets available."

Student ingenuity, computational firepower
Drawing on the computational power of the Hanlon Financial Systems Lab, a small graduate-student team is writing software that will enable multiple complex strategies and high-frequency algorithms to be simultaneously entered and tested to study interactions of different models and strategies with one another and the dynamics of the resulting asset prices. Market orders will be routed and matched much as they are in actual high-frequency electronic markets. The platform will also possess the capability to record and store both live market data and historical data, enabling repeated testing of alternate scenarios.
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- See more at: http://www.stevens.edu/news/content/crash-test-stevens-builds-new-tool-probe-financial-markets-potential-dangers#sthash.gsYmrAi9.dpuf
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