TheBooks Blog

These are the most recent posts from TheBooks Blog.  To explore the entire blog, go to http://blogs.dmaxx.com

 

Raising AUM is universal for any size CTA

: 01 Dec 2016

Big and emerging CTAs alike have one need in common: growing assets under management. Although the large CTAs who get the lion’s share of investment funds have a different path, the truth remains: assets come and go and the hunt for new money is universal.

So what do the experts advise in this hunt for investment? What should all CTAs be doing, and how does that change as AUM grows? Here are some pointers from managers, third party marketers and asset allocators on how to grow your AUM.

What Investors Want

In a 2014 study by Cogent, (and updated by Johnson & Co in 2016), it was found that large investors, from where a significant amount of money is entering the managed futures industry, are consistent in their needs. Both pension and non-profit funds see integrity and transparency as a first hurdle. Of course, investment performance also is key, along with organization stability. Interestingly, fees and fee structure ranked seventh, with risk management practices not far behind.

Bryan Johnson, of Johnson & Co. notes, “The fundraising climate is filled with stringent expectations by investors along with increased operational requirements.” This means an especially high bar for smaller managers, those with less than $100 million AUM, as they have the most “mistake-filled” marketing efforts and typically “have no real marketing process,” which leads to “guesswork, poor choices, inconsistent behavior and fatal mistakes.”

Even in the billion-dollar world of large CTAs, raising funds can be difficult, especially as firms need to set themselves apart from other behemoths. And though big investors say fees aren’t as key, they are. One reason all the new smart beta strategies have evolved – mainly through large trend following CTAs – is to give pensions, who are used to paying investment manager by basis points, an option to utilize the strategy without the risk, or über performance.

For smaller or emerging managers, there is a need to make a name, and often this comes through adopting new or unique strategies.

Andre Boreas, CEO of Quadsight Partners, says, “Investors these days are looking for a unique strategy that compliments their existing portfolio.” Understanding this going into an investment meeting “can make the difference whether your material actually gets read or gets the 15 second fly-by.” These investors want to know how you can “add value to their total portfolio.”

For example: if your strategy focuses on distressed credit, and you’ve learned asset allocators believe “the time’s not ready” for that market, educate them. Engage them on what is happening in that market, including anything from “energy assets to European bank debt.” This insight will help as they make their future selection and set you apart. Likewise, if your CTA focuses heavily on commodities, educate allocators on the need for diversification and exposure to this asset class especially with the uncertainty that a move to less globalism that the incoming administration campaigned on will have on equity prices.

Universal Truths

For any size CTA, there are core rules every asset manager recommends:

  • Maintain ongoing dialogues with your current clients for additional funding, and leverage your clients to be introduced to potential new prospects.
  • Provide updated performance information on regular basis as well as explanations of your approach.
  • Maintain ties to organizations and school alumni groups for networking.
  • Attend conferences set up to be mixers for CTAs and asset allocators, focused on your CTA size. For example, CTA Expo/Emerging Manager Forum purposely was designed for emerging CTAs who need to meet those wanting to invest in new and growing talent. Even if brand new to the business, it’s good to start meeting allocators, but attend any conference with a plan: set up appointments prior to attending, have key marketing materials, know who you are meeting and remember it’s not always about you. Focus on their needs as well.
  • Hypothetical track records will take you as far as family and friends. If you haven’t actually put real money in the game, your message will be lost. In a similar vein, if you have less than a 2-year track record, you’ll need to outline how your trading would perform in various economic cycles.
  • Hire a third party marketer, if possible, that will allow you to focus on your business and trading; that said, be available to meet potential asset allocators; you can’t simply outsource your sales and marketing and expect to be successful.
  • Be able to explain your trading clearly and simply. Focus on your main strategy, for example: short-term trading with focus in financials, and move on from there. Be able to explain any changes to the program, drawdowns, new products, etc.  Convey how your alpha generation is repeatable, as well as have available key quantitative measurements, such as risk, daily exposure, alpha vs. benchmarks, and volatility.
  • Be able to explain your operation, and why they should feel confident in your business organization, especially back office operations.
  • Be prepared for a long gestation period for their interest to take hold, always follow up without being a pest, and be ready for disappointment. Most people you’ll meet with won’t be investing, but each meeting will be educational.
  • For larger firms that have long track records, it’s important to understand what big money, such as pensions, endowments and corporate funds have done with investments in the past. Also, today consultants are the key pathway to these big firms, which hire them to do the leg work. That said, it’s typically the pension board that makes the final call, usually but not always following the consultant’s advice. The lesson here is to get to know the consultants and make sure they are informed about you, and any new products, as is the final client.   Consultants can make or break an investment.
  • Look at all options for raising capital. Today there are several trader “platforms” such as Kettera, Oasis and Genesis that actively search for CTAs to include on a platform in which clients can review and pick and choose CTAs for a portfolio. Sometimes a CTA will have to put up initial capital for these platforms, and it may be well worth it as an extra tool to raise funds. Larger platforms, such as those of Deutsche Asset & Wealth Management and Lyxor, typically appeal to big money, so for smaller managers, check out the independent platforms. Also, check their distribution methods and which ones provide the best clientele.
  • Access business through your broker: leverage that relationship whenever possible. Many brokers won’t do marketing for CTAs, but some select ones will push what they consider strong players to their clientele, which can be a far-reaching network. The best advice is to keep working with your brokers to determine how they can help you increase your AUM.

One final note: The DOL’s new fiduciary rule going into effect April 2017 impacts qualified assets, retirement and tax exempt funds on the brokerage side, basically saying these funds can no longer pay commissions to brokers, but need to pay in basis points as registered investment advisors are currently paid. Call this the institutionalization of the business where large futures funds and CTAs have entered the mutual fund arena with either smart beta or other types of funds. Fees of old will be bypassed; for example, BoA Merrill Lynch has already told its brokerage team to quit selling mutual funds to retirement accounts due to this change [Note: a Trump administration has said it might disband this ruling]. This does not affect non-retirement funds, but as one fund manager said, CTAs should realize that fund raising on a large scale will need to be focused on finding the best distribution networks, such as those made up of RIAs. Bone up on the regulations to see how it will affect your business.

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

How the Right Technology will Simplify Your Life - part 2

: 26 Sep 2016

In the previous article, I discussed  how technology can help CTAs with back office tasks and potential headaches. Here I am looking outside the trade, to setting up and collecting and distributing performance information, especially to clients.

Tear Sheet Creation

One of the more time-consuming tasks for an advisor is the production of the marketing summary that is emailed each month outlining the performance of their programs. The production of performance statistics, comparison benchmarks, and other information contained in the document often requires hours of preparation.

Software designed to address this problem allows the author to set up the document layout and style to fit the organization’s requirements, select from multiple charts and tables and save the definition for use each month. When it is time to prepare an updated version of the tear sheet with the information from the most recent reporting period, it is simply a matter of clicking a button and entering the commentary; hours become minutes.

Performance Attribution

As investors and regulators get more sophisticated, the requests for the attribution of an advisor’s returns get more complex. Attribution by direction (long/short), by sector, by market, by strategy, net of commissions, without commissions, by NAV, by trading level, by timeframe, all are becoming standard types of requests. Add to this that these reports are required every day and must be sent to a variety of investors, and not having a flexible reporting database fed directly by your trading and accounting can overwhelm a firm’s resources.

Email Encryption

With the latest Interpretive Notice from the NFA on Rules 2-9, 2-36, and 2-49, the requirement of encrypting all data in motion is nearing reality. This means that any emailed or FTPed report your firm generates and sends will have to be encrypted.  It also means that any client information your firm receives (statements for example) will be encrypted as well.

Manually decrypting files when they are received or encrypting them before they are sent will place an extreme burden on your operations staff because each source and destination will have different encryption keys, passwords, and methods.

Solutions like subscribing to a service that encrypts all emails is one approach. A more flexible, easy and cost effective approach is a system that is integrated with your trading and reporting systems and automatically encrypts files and reports that are to be sent as part of the sending process and decrypts statements or other inbound client information as it is received.

Performance Fee Calculations

Handling managed accounts often means different fee calculations for each account. Daily liquidity means additions and withdrawals can occur at any time. Combine the two and you now have a complex performance reporting and fee calculation environment. Yes, it could be done in Excel, but no, that is not traceable and it is prone to errors from simple copy/paste mistakes.

A better solution is a system that is directly linked to your trading and calculates performance using the daily compounded returns method, allows formula-based fee basis formulas for management and incentive fee calculations at the account level, and automatically adjusts the high water mark when additions or withdrawals occur. The results are daily NAVs without the need for manual intervention or the risk of error that a spreadsheet brings.

Client Reporting

What do you do when each of your clients want different types of reports each day? If you don’t have a flexible system designed specifically for customized client reporting, someone in the firm spends time after the close preparing the reports and manually sending them to clients.  If, for some reason, that person has the day off, the process may not run as smoothly under the best circumstances. If something in the “process” goes wrong, life gets very interesting.

If, instead, you had a system that allowed you to define what types of reports each client is to receive, in what format, via what sending method, the reports would get produced automatically as part of the end of day process; no manual intervention required.

In these two articles, I have outlined the key areas where effective automation is key to the smooth and cost-effective operation of a CTA. Systems that have been designed to be flexible and integrate all the aspects of a CTA’s operation provide a higher level of client services at a lower operational risk and are able to grow with the organization.

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

How the Right Technology will Simplify Your Life - part 1

: 07 Sep 2016

Operating a CTA is not always the glamorous, flashy career that the uninitiated believe it to be.  It involves many tasks that can be tedious and error prone but must be performed flawlessly every day. Add to that, the ever-increasing regulatory burden, and you have something that can wear down the stoutest of traders.

While many, if not all of the tasks related to the operation of a CTA can be made easier and more reliable through the use of technology, there is a big difference between solutions that address procedural issues in a very specific way and ones that are flexible by design and can be configured to accommodate changes as they occur.

In the next two articles, I will discuss the primary problem areas common to every CTA and how they can be addressed in a flexible and reliable manner. In this article, I will look at back office trade issues.

Account Reconciliation

The reconciliation (trades, cash balances, and positions) of a firm’s accounts with its clearing brokers is a daily job that can be one of the most time consuming processes in a CTA’s operation. Yet it doesn’t have to be with the right technology.

The ideal system is able to automatically accept emailed statements (data files or human readable statements) and/or reach out to FTP sites to download them, unzip and/or decrypt them, extract the data while performing translations so the varied statement formats are transformed to the CTA’s standard, and finally, prepare break sheets for trades, balances, positions, and trading commissions. The system should be configurable by the user and be able to accommodate new and changed statement formats without the need for coding changes.

A system with capabilities such as these reduces the time and effort involved with reconciliation to almost none.

End of Day Trade File Production

Any CTA knows that there is no standard format that administrators and broker back offices want for the trade files that must be sent each day. Not only is the layout up for grabs, but the content, symbology and price format can vary as can the transmission method (email, FTP, sFTP …), not to mention file encryption requirements imposed by some (soon to be all) organizations. Manually producing and sending these files is a burden for any but the smallest advisor and developing (and maintaining) software for each new format is not in an advisor’s core competencies.

The best automated system integrate trading and account management as well as incorporating multiple communication modules that allow end-user specification of file layouts per destination, symbology, and price format. It automates the entire trade file production and transfer process and allow those files to automatically be sent without the need for user intervention.

Trade Capture

Trade capture can mean many things. It can mean a direct to the exchange or trading platform FIX connection, it can mean importing trades from a data file, or it can mean the data entry of fills received from a broker via email. In many CTA environments, it is a combination of two or more methods.

It’s important the system used by the CTA is able to capture the trades, convert the symbology and pricing to the CTA’s standards, and process them continuously and reliably, during all trading hours. Equally important is the ability of the system to be configured to adapt to accept additional or changed trade sources with a minimum of time an effort.

A robust and reliable automated trade capture system is the core of an institutional CTA and saves countless hours of effort and minimizes the errors associated with manual or piecemeal approaches.

Trade Allocation

Trade allocation is a term that conjures up one of two meanings: how a number of contracts is to be divided among several accounts when sizing a trade, or, how received quantity/fill price pairs are divided among the accounts that make up a trade. In either case, failure to do it fairly and consistently will land you in a heap of trouble with regulators (and maybe clients).

In the case of sizing trades, the typical method of contracts per million of trading size is pretty straight forward unless accounts within the trade are valued in different currencies, then a currency conversion to the model account currency must occur. For traders that ladder in and out of positions, a useful approach is to base the trade size on a target level of contracts per million after the trade is fully filled. This eliminates the rounding that occurs if each entry is sized in isolation.

For price allocation, many organizations have moved to APS. Unfortunately, not all markets can be APSed and not all clearing brokers APS the same way. Your software should be able to APS the trade in such a way that the approach used by each clearing broker involved in the trade is followed.

Better still, if your trade sizes can support it, use a simulated APS that apportions the actual fill prices in such a way that each account gets a mixed fill that is as close to the trade’s average price as possible.

I have covered the key areas of automation that must exist in the CTA if the firm is to be able to attract funds and maintain a low risk operation. Not only should these areas be automated, but they should be automated in a way that is flexible to ensure the processes can evolve as the needs of the CTA change. In my next article, I will focus on collecting and distributing performance information

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

Why Compliance is the New Black

: 02 Aug 2016

Earlier this year, the NFA implemented rules that CTAs, CPOs and others must have in place a cyber security and compliance plan that provide a detailed outline on the firm’s daily behavior in following the rules, as well as a step-by-step disaster recovery plan.

Although the regulator isn’t calling in these plans, it will check them during an audit, and if you aren’t prepared, you’ll be in violation. Compliance has been upped largely due to Dodd-Frank rules, but also because the NFA and exchanges are under increased scrutiny by the CFTC.

That said, there are key areas of compliance across all regulators that need to be part of the game plan for a firm’s daily operations. Here are important aspects to include in your plan:

  1. Know your vendor and customer:  NFA Bylaw 1101 “prohibits NFA Members from doing business with most non-members that are required to be registered with the CFTC as an FCM, IB, CPO, or CTA.”  Basically, you must do business with your own. It’s up to the CTA to make sure clients, business associates, and brokers are all registered or exempted. The NFA requires you to be able to show not only the process your personnel takes to check out the potential vendor, and that means checking them through BASIC, you need to keep all the documentation on had to show your research.

    You can roll the dice and assume vendors are members, but that’s not good business. For example, let’s say you know three friends, traders, who pooled their money to invest in your CTA. First, you must make sure the key person is a qualified investor, but you also must make sure if they are a pool, all investors are qualified, and you must retain documentation confirming the fact.  In other words, if they are representing themselves as a pool or FCM, they must be registered with the NFA.  For more details on 1101, go to: https://www.nfa.futures.org/NFA-faqs/compliance-faqs/bylaw-1101/index.HTML

  2. Make sure from a CTA standpoint, your automated systems allocating trade orders are “equitable and fair.” This should be checked quarterly.

  3. Related to #2, make sure that all accounts within a program have substantially the same performance and that performance is what your marketing materials state for the program.  If different accounts have substantially different performance, the regulators may take the stand that you actually have more than one program.

  4. Not only must a CTA know who he’s dealing with on multiple levels, he needs to know what his vendors are doing, especially FCMs. One compliance expert says a CTA needs to be on top of not only filled orders, but the source data as well.  FCMs don’t necessarily hold the old back up files of trade audits (and if they do, some charge for it), and if an exchange comes asking for it, a CTA must be able to put his hands on records and source data that can build an audit trail or trading activity, and be able to produce it in a short amount of time.

  5. Sometimes slip-ups can happen due to changing regulations but often they happen due to bad communications between an FCM and client. For example, those who trade metals might be using exchange for physicals (EFPs), which are executed thru the FCM to get a futures equivalent position. In some cases, block trade rules come into play, meaning there are minimum lot sizes to a trade. The CTA must understand the rules when dealing with an executing brokers so he doesn’t unintentionally break any. 

    As an example,  if a CTA is doing a gold trade, but the executing broker could only get a partial fill, thus it’s not a block trade but an EFP, but the CTA doesn’t know this and if the FCM doesn’t do the paper work – and sometimes they don’t – the CTA is in trouble. Be on top of those trades; in the past, it used to just be a venal sin: one of not knowing. Today it’s a mortal sin, says one expert, stating that CTAs must follow up on trades.

  6. Allocation of expenses between the manager and funds, and between funds has been the focus many recent examinations and common issues have included charging expenses that are not fully disclosed to investors and charging one client an expense where another does not pay the same expense.  Examiners have been aggressively drilling down on expense allocations even when the amounts are minimal.

While NFA audits have not been as frequent during the past few years due to the recent influx of new members, the NFA has recently reached what they consider appropriate staffing levels and you should expect audit frequencies to return to normal.  It’s time to make sure you are dressed appropriately for the party.

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

The Big Question: How to select an FCM?

: 13 Jun 2016

With the shrinking number of FCMs, it might seem a CTA has little choice, or in some cases, too many. Either way, you need to know the questions to ask, and if you’re not happy with the answers, move on.

When a commodity trading advisor first hangs out their shingle, the punch list is long and many items are of equal importance: infrastructure, back office software and compliance being the most common. But of course you’ll need a broker to execute and clear your trades. No doubt you already have the one you used while on your own, but as you grow your business, your brokerage needs will change, not only due to your trading and capital, but to satisfy your client’s needs as well. Here is a list of what CTAs, software vendors and brokers say you should discuss with prospective FCMs:

The Basics

  1. Yes, size does matter. Although you may like the idea of having a Goldman Sachs or JP Morgan as your FCM, the truth is your options might be limited by your size. Especially as the number of brokers has dropped from almost 180 in 2007 to 72 today, many of these, especially bank-owned FCMs, will be out of your league. Size may be a main issue: CTAs with less that $100 million may not get a chance with a large bank FCM. But what is also important is how valuable (active) you are as a customer. As banks have to deal with constricting balance sheet capital due to Basel III, they have off loaded customers who don’t meet their ROI needs. If you have $100 million AUM but trade only a limited number of lots a month, you won’t make the cut. This isn’t necessarily a bad thing as many CTAs have been shifted to smaller non-bank FCMs. Although a large balance sheet might be nice, so is not dealing with a bureaucracy. 

    The reverse is also true. As you grow, a smaller FCM may no longer be able to accommodate your capital and trading needs. No matter what your size, it’s always smart these days to have relationships with multiple FCMs; to wit, the cautionary tales of customers who had all their money with MF Global or PFG.

  2. Ask for a list of exchange memberships. It may seem a firm with more memberships is pricier, but if you trade globally and decide to go with a downstream broker, that firm will have to use another FCM to access those exchanges and you or your clients will be charged in the end. Also find out if the firm has a 24-hour CTA/Institutional desk. Even if you won’t normally need it, it’s nice to know it’s there in case of an emergency.

    Related to this are give up trades. Make sure your broker does or accepts them. Some brokers may be a perfect fit when you are trading as an individual, but a firm that won’t do or take give ups will complicate your growing CTA business.

  3. Does the FCM permit net margining across all accounts? This means if you bring on a client who has multiple accounts with multiple CTAs, you want the FCM to be able to ‘net’ the margin across all those accounts and not require each CTA to be margined separately. This is not only across CTAs, but also across various fund accounts, and similar to net margining at an exchange, allows better use of collateral for your customer. 

    Also, make sure the FCM isn’t “margin padding” your account, that is insisting on much higher (3x-4x) margin needs than exchanges require. Although all FCMs request more margin than is required (in the interest rate glory days this was an income stream for FCMs), it shouldn’t be exorbitant. One CTA says a large bank FCM was requiring 3-4 times margin as a way to get rid of business that didn’t have a strong ROI. This may be an extreme case, but keep an eye on what they are charging, and be diligent after setting up an account that the broker doesn’t change the rules, and if they do, find out why. Also, find out  - due to balance sheet issues for bank FCMs - if they charge for “excess funds” held at the FCM.

  4. Cap intro? In the “old” days many FCMS would make sure their asset allocation clients mingled with CTAs, but this is more rare today. Sure there are firms that have people who work to raise funds, but may only introduce them to CTAs they feel worthy. Think of FCMs like asset allocation targets: they have standards and just because you are a client doesn’t mean they will send clients your way. Some firms do have platforms (e.g., RJO’s Oasis) that allow asset allocators to review and invest in CTAs.

More Details

  1. Find out the format and how end of day allocation files are handled.  Most FCMs will request that allocation files be sent to them at the end of each day although some want them at the end of each session or even after each trade.  Many are flexible with respect to symbology and price format, but not all are.  Also, just because you provide data files of your allocations, it does not mean those are not being manually keyed into another system by the FCMs staff; you should check to be sure that the files are being handled in an automated fashion otherwise clearing errors are sure to arise.

  2. Online account viewing platforms and ability to provide trade prices (both actual fill and APS prices) at regular intervals during the day as well as at the end of the day.  Many firms don’t provide anything more than and end of day feed that summarizes all the trades done during the day. Ideally, the feed would be automatically generated and provided in the format and use the delivery method (sFTP, eMail, etc) that works best for you.

  3. Ask about which trading platforms are supported, such as Trading Technologies, CQG, TradeStation, Cunningham, etc.  Make sure your FCM supports your trading platform, as not all FCMs are equipped to handle all platforms.

Finally, you should always check with the National Futures Association (www.nfa.futures.org) website to see if any actions have been brought against an FCM. Also, the CFTC site carries monthly financial info on all FCMs (http://www.cftc.gov/MarketReports/FinancialDataforFCMs/index.htm).  That can provide you an overview before getting into the details when interviewing the FCM.

Remember, just as you are diligent about the rest of your business, your FCM/broker partnerships are lifelines that need to be reviewed often and analyzed on a regular basis. After all, “know your customer” goes both ways in all vendor relationships.

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

4 cyber security keys for CTAs

: 19 Apr 2016

More than a buzzword, cyber security is core to how your systems are set up, what information passes through your business and how you plan to recover from a disaster. Here’s what you need to know.

Today, cyber security is a necessary worry and cost of doing business for everyone in the trading community, especially commodity trading advisors. The NFA’s new requirement that every member must have a cyber security plan in place is merely a formality for what a CTA should already have as part of its business set up. And today’s cyber security is not only a mechanism for dealing with viruses, phishing, and other forms of computer system intrusion. In reality, the concept of cyber security is something much broader; something that addresses how you ensure that your computing and information resources are protected from failure or compromise, and if that happens, how you plan to recover from that event.

One way to determine your exposure is to think of your computing and information systems in terms of the “surface area” they present to users and external entities. In a typical CTA, this would include email sending and receiving, web browsing, file transfers using FTP, user access to workstations and servers, remote backup providers, and cloud data and/or computing resource providers. Each of these must be both reliable and secure if a firm is to operate successfully.

Virtually all firms have anti-virus software installed on their workstations; you should since it comes for free with the Windows operating system. This may not be the case for all the servers within a firm as these generally require specific versions of the anti-virus software. Yet it is critical that they be protected as well because these systems are often the repository for files and data accessed by multiple workstations.

When it comes to cyber security, where organizations typically stumble is in other areas: intrusion detection and reporting, securing information “in transit,” securing information on mobile devices (laptops, tablets, cell phones), and access and recovery strategies when using cloud-based storage and computing platforms. Let’s look at each of these:

1) Intrusion detection and reporting are systems that monitor access to your computing resources and generate alarms when suspicious access is detected. For example, these could be triggered by a certain number of failed logon attempts, logon attempts using well know usernames, or access attempts from untrusted networks.

2) Securing information in transit involves either encrypting all files and messages sent via email and FTP or using end-to-end secure communication channels. In practice, encrypting the actual information sent is a more prudent solution as end-to-end encrypted email is rarely available and using encrypted versions of FTP still leaves the information at the destination in an unencrypted state.

3) Securing information on mobile devices (laptops, tablets, and cell phones) is more than simply having a password to access the device. The latest dust-up between the DOJ and Apple shows that it is possible to access a password-protected device without compromising the data. The information on the device also must be encrypted as losing physical control of a mobile device is possible. Also, as a “60 Minutes” investigation revealed recently, hacking into smart phone voice and data isn’t difficult, and that could be catastrophic for a CTA. (see transcript of that program: http://www.cbsnews.com/news/60-minutes-hacking-your-phone/)

4) Access and recovery strategies. Many organizations treat cloud-based storage and computing resources as if they are somehow immune from failure. While major vendors such as Amazon, Google, Rackspace, and Microsoft have impressive uptime statistics, their annual downtimes still are measured in hours. Virtual machines within these environments must be secured the same way as those on your premises, but access to these systems is limited by their uptime and your ability to access them (yours and their internet connections.)

When looking at recovery from a failure or other incident, the typical solution will be some type of disaster recovery (DR) system that replicates the systems required to operate the organization. These can be cost-effectively implemented in a cloud environment as there are billing models that only charge for the time the virtual machines are running. For a DR environment, that need only be the time it takes to snapshot data to the backup environment (typically a once-per-day event). For those whose primary environment is cloud-based, it’s a bad idea to have your DR in the same vendor’s cloud because your primary and backup would be exposed to downtime at the same time. Follow the industry adage and diversify to other vendors.

In addition to recovering from hard system or environment failures, the ability to quickly recover lost or otherwise corrupted files must be another aspect of a firm’s cyber security plan. While there is no substitute for a robust, daily backup strategy, using products that replicate and version files into the cloud (Dropbox, SecuriSync, and others) can provide rapid access to compromised files from non-compromised systems. (Note: The issue here is that files are replicated as they are changed, so if a file gets corrupted, such as with a virus, that corrupted file will be replicated. These services must keep track of versions so you can retrieve the pre-corrupted versions of the file.)

Effective cyber security is critical to the ongoing health and well-being of a CTA and should be approached with the same (or greater) vigor as any other aspect of a firm’s procedures. Get started with a thorough review of the surface area of your systems and follow up with protection and recovery plans for each potential failure.

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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

Regulation AT: If you think it does not apply to you, think again

: 05 Apr 2016

Algorithmic trading typically conjures up thoughts of Michael Lewis’ “Flash Boys” and high frequency traders. The objections to these market participants have come from many areas and they have been blamed for bouts of volatility that make little sense. The response from regulators has been expected, but certainly not in the scattershot form of Regulation AT (CFTC proposed regulation RIN 3038-AD52, Regulation Automated Trading[1]).  The CFTC states as its purpose “to address the risks of algorithmic trading through a series of pre-trade risk controls and other measures that AT Persons, clearing member FCMs and DCMs must implement.” Any new regulatory proposal raises hackles, but this one, with its all-inclusiveness as well as potential risks, has caused outright howling.

At the heart of the regulation are the definition of two terms: Algorithmic Trading and AT Persons.  An AT person is an entity that uses Algorithmic Trading and would then be subject to the provisions of the proposed regulations.  Unfortunately, the CFTC has chosen definitions for these terms that would result in virtually any organization that trades an electronic market to be considered an AT Person.

Essentially, it defines Algorithmic Trading[2] as using one or more computer algorithms or systems in the trading, input or modification of an order. Which says if a computer generates an order - with the sole exception of a person typing it exactly into a computer with no further discretion by any computer system - it is Algorithmic Trading.

But that’s not all. Let’s say that after you type the order into the trading platform, you use an auto-spreader or have the order worked as a TWAP or VWAP order, you would now be doing Algorithmic trading.  If you were a long-term trend follower, generated signals once per day and produced an order file that you emailed to an FCM that imported it into an X-Trader system on your behalf, you are doing Algorithmic trading.  If you were an energy provider and used Excel to help size the number of Natural Gas contracts needed to hedge your contracted deliveries, then transferred those requirements into an electronic platform (say WebICE) for execution, you are doing Algorithmic trading.

As you can see, the net has been cast far and wide for this definition.

The definition of AT Person is equally expansive:

“entities that may be considered an AT Person: persons registered or required to be registered as FCMs, floor brokers, SDs, MSPs, CPOs, CTAs, or IBs that engage in Algorithmic Trading on or subject to the rules of a DCM, or persons registered or required to be registered as floor traders.

Such persons or entities would be AT Persons if they engage in Algorithmic Trading on or subject to the rules of a DCM, or persons registered or required to be registered as floor traders as defined in § 1.3(x)(3).”

This encompasses just about any organization involved in trading futures especially because the definition of floor trader is proposed to be expanded to include anyone with direct market access, which includes using platforms such as CQG, TT, and Bloomberg, or exchange-specific interfaces such as WebICE and is not restricted to those traders using direct connections using FIX.

Many of the 88 comment[3] letters were from firms concerned the new rule would subject their source codes to cyber hackers, not believing the CFTC has strong enough firewall protections, not to mention staff leaving with the knowledge of their algorithms. CTA Two Sigma’s letter noted: “Trade secret protection depends on our efforts to prevent unauthorized disclosure of our confidential information and, as proposed, Reg AT inadvertently lessens those protections.”

But in addition to that concern, Regulation AT would force organizations to:

  • Implement specific Pre-Trade and other risk controls (message and execution throttles, maximum order sizes, price collars, and other automated controls)
  • Implement specific standards for the development, testing, monitoring, and compliance of the trading systems
  • Implement maintaining source code for trading systems in accordance with Commission regulation § 1.31, meaning it must be available for the CFTC and DOJ for inspection at any time.
  • Prepare and submit compliance reports to DCMs

CFTC Commissioner J. Christopher Giancarlo has gone on record[4] questioning whether the regulation “sufficiently benefits the safety and soundness of America’s futures markets so as to outweigh its additional costs and burdens?”

He specifically raised concerns about how the costs of the proposal may disproportionately impact small market participants especially because the commission admits in the proposal that they do not have a good understanding of how many organizations would be affected. That said, the proposal was unanimously passed and put out for comment. CFTC Chairman Tim Massad has stated that the CFTC handles confidential information “all the time,” adding that with Regulation AT, the CFTC wants to make sure the “source code is preserved and is available to us when we need to reconstruct market events.”

The comment period closed the day Chairman Massad spoke to the Futures Industry Association in Boca Raton, Fla. He assured the audience the CFTC would “review comments carefully and decide if there are any issues on which it would be beneficial to invite additional comment.” This is a good sign, meaning the regulator may be open to more industry input. Then again, he says they want the rule finalized by year’s end, so steel yourself to the possibility of new regulation that comes with more administrative burdens, costs, and yes, questionable impact.


Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com


[1] http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/federalregister112415.pdf

[2] CFTC defines Algorithmic Trading as:

“trading in any commodity interest as defined in Regulation 1.3(yy) 169 on or subject to the rules of a DCM, where: (1) one or more computer algorithms or systems determines whether to initiate, modify, or cancel an order, or otherwise makes determinations with respect to an order, including but not limited to: the product to be traded; the venue where the order will be placed; the type of order to be placed; the timing of the order; whether to place the order; the sequencing of the order in relation to other orders; the price of the order; the quantity of the order; the partition of the order into smaller components for submission; the number of orders to be placed; or how to manage the order after submission; and (2) such order, modification or order cancellation is electronically submitted for processing on or subject to the rules of a DCM; provided, however, that Algorithmic Trading does not include an order, modification, or order cancellation whose every parameter or attribute is manually entered into a front-end system by a natural person, with no further discretion by any computer system or algorithm, prior to its electronic submission for processing on or subject to the rules of a DCM.”

[3] http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1646

[4] http://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement112415

Best Practices for a CTA's back office - part 2

: 02 Mar 2016

Trading can be hazardous, but not being on top of your business and accounting can be even worse. As we noted in the last blog good performance is great, but good performance with a stable, efficient and reliable back office is what investors want. What exactly does that mean to the CTA?

Mike Dever, CEO and Director of Research of Brandywine Asset Management, has been a CTA since the 1980s and has gone through many allocator reviews – and received many investments. He says typically the allocator will send an itinerary of what they want to review and if they don’t, Mike will ask for one. Also, more common today is two groups come from the allocator: one that comes to discuss philosophy, research and strategies with the manager/traders, and the second is operational, charged with determining how the CTA executes trades, what’s its relationship to its brokers, and what is the underlying technology; basically the back office details.

To prepare, Dever and his team put together all the requested information, data print outs and examples, in one large notebook that they’ll review with the allocator when they visit. They also will go through the actual back office process, for example, providing a demo account, allowing the allocator to sit in and experience the process step-by-step.  He says his team does practice drills before an allocator review to make sure the meeting runs smoothly.

So let’s discuss these best practices and what they mean to the CTA:

1) What is your general setup: legal structure, ownership breakdown and financial strength? But beyond that they want to know about key personnel and with that, segregation of duties (ie. compliance can’t be sales, operations shouldn’t be accounting). Some back office accounting software, like TheBooks, have the ability to limit access to certain parts of the business via security codes, and can be defined by personnel or job function.

Also scrutinized will be cross training of personnel; if someone is sick or an emergency arises, can others step in and provide the same quality of service? Do you have a process set up for new hires? And what happens when you travel? What is your back up, both for that day as well as the bigger picture in transacting the business?

2) Who are your key service providers? These include back office accounting software, general accountants, FCMs, technology providers, administrators and even temp agencies.  You’ll need to outline how these firms are chosen, what roles they fulfill and on what basis are they are dismissed. Here allocators look for depth: they want to make sure the CTA is buying the provider not just for pricing, but because it actually does what is needed. Also, how do you monitor vendors? For example, do you or someone else at the firm review end-of-day results, and if not, they should be. Allocators will want to see a checklist.

Annette Cazenave, principal of A. Cazenave LLC, says: “Let’s face it, your two big areas of liability are striking NAV and how you sell [your products], so you need to review everything before you push it out the door.” Also, if you lose a key person, can your service providers step in to fulfill that need until you’ve gotten the next person up to speed? Do you have that action plan set up?

3) Operational processes and procedures for trading controls, compliance, valuation and treasury. This includes being able to show reproducibility of trades, daily trade files, valuation checks and transparency. It also means showing how you move the money around as well as how you handle new allocations.

Dever says they typically need to document a trade: how was it generated, how did it get sized, how was it allocated per client and why, who was involved in trade? Again, having reliable back office software that can document trades is key. Todd Fulton, senior VP, capital introduction, for R.J. O’Brien, advocates all traders have back office software, noting, “Trade checking is a major part of what I like about TheBooks.” Alan Zenk, who runs CTA Services, a service bureau for smaller CTAs, says that the NFA recently has focused on trade allocations and making sure they are handled similarly across all accounts. With various sized managed accounts, this could be a nightmare for CTAs and a major trip up in a due diligence review.

4) IT infrastructure, cyber security and disaster recovery: You’ll need to outline the IT infrastructure of the company, explain your account security and what happens if an event, man-made or not, brings the system down. This doesn’t mean necessarily a 9/11, but could mean the Internet going down, an electricity grid failure, or a snowstorm (or other natural disaster). For example, if a huge storm is coming, are you getting hotel rooms for key personnel? The answer may be yes, but what’s your game plan? Remember too, third party vendors are helpful in this situation as they can serve as back ups and remote offices: know ahead of time what you can rely on and be able to explain it. This certainly is a mark of a prepared trader who is ready to take on large allocations.

It’s a formidable task to be a successful CTA, but actually designing a winning model and/or strategy is only one part of the success quotient. Making sure your back office is well structured is key, and though standards may differ allocator to allocator, the points highlighted here are a minimum.  Think of it like this: Trading is driving the racecar, but it’s the pit crew that wins you the race.


Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

Best Practices for a CTA's back office - part 1

: 23 Feb 2016

Every trader who has tried to raise money knows the drill from investors: yes we want to know about your performance, but also, explain in detail your back office (infrastructure, organization). Most allocators come with pages of checklists and expect the CTA to be able to answer their questions in full. In these next two blogs, we’re going to cover what allocators expect and explain what it really means to have a back office that passes investment standards.

Allocators like stability and thoughtful, business-like leadership that goes beyond what the yen will do tomorrow. Obviously, a core aspect of their job is performing due diligence on potential (and current) managers to make sure CTAs live up to these expectations. Many have a separate unit that only performs operational due diligence, and if they find anything amiss, even if the trader has outstanding performance, the investment will get nixed.  As Joe Vanderbosch of Dominion Capital Management notes: Allocators are looking for reasons to stop looking at you. So here we’ll discuss the first hurdles allocators want a CTA to overcome, and in our next blog, we’ll go over a checklist of essential back office needs and how to prepare.

1) Performance metrics: It’s not enough to have good performance, you need to be able to get into the granularity of it with daily and monthly performance data including information such as P&L attribution by market and sector, volatility, VAR and standard deviation. Vanderbosch notes that your end-of-month performance might be up 2%, but an allocator wants to see within those numbers and hear you explain them in an organized and disciplined fashion.

2) Reinvestment: Are you regularly investing in research and systems? You’ll have to show how you update not only your trading systems, but prove that you’re properly funding the research team and operational infrastructure.

3) Personnel: Obviously if a key manager leaves, the question is why? How was that person replaced? How long has personnel been with the firm? Who makes up the trading desk? Who runs the back office? What is the turnover rate? These answers need to be explained thoroughly, especially if there was a personality rift between principals and key managers/traders.

4) Expenses: Where is the money being spent, especially related to fees? Extravagance is a turn off.

5) Transparency: Holding back information when explaining your systems won’t win points. Allocators often feel CTAs think they’ve discovered the Holy Grail when it’s a simple trend following program. One London consultant noted a coy trader wouldn’t  be recommended to clients.

6) Execution: Allocators realize this is a main ingredient in the trade process and expect CTAs to understand its importance and be able to explain it fully during due diligence. They want to see that you have a detailed process that is transferable across your team.

7) Outside advice: The make up of your board should have at least one Independent director, an independent fund administrator and solid outside service providers. Unknown, poor quality service providers can show a lack of commitment to invest in the business.

Next time we’ll detail Back Office Best Practices, and show how CTAs can alleviate the day-to-day pain of managing a business and handling managed accounts in a practical and simple way.


Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

3 New Year's Resolutions for CTAs: Get your house in order

: 18 Jan 2016

It is hard for commodity trading advisors to see themselves as a commodity, but  that’s what they become once their firm has been spotted by asset allocators. After all, a trader who has a 10% risk adjusted return is pretty much like another trader who has a 10% risk adjusted return.  Of course the key always will be performance, but time and time again, asset allocators say how traders run their business is just as important as who they are and how they trade.

So a goal for any trader is to get their house in order. That is, make sure your business is solid, your back office efficient and your reporting clean. To help out, we came up with three resolutions all CTAs should strive for this year. These ideas will help free up your mind to focus on trading, but acknowledge to allocators that you are ready to handle growing assets.

1) Reconcile trades, positions, and balances on every account, every day

Oh, the horror of reconciling all those managed accounts! But it needs to be done. Yes, you get statements from your broker(s) and trust those, especially as that is what the National Futures Association will look at in an audit, but it’s you who has a fiduciary responsibility to your customers, not the broker. That means it comes down to you to make sure the details of your statements are correct. The broker won’t get fined, but you will if those numbers aren’t right.

2) Publish your monthly performance by the third business day of the month

Get your performance information to the agencies, on your website, to your customers and to publications that need it regularly by the third day of the month. Of course allocators may have your daily balance, but spreading the word is the key here. Don’t delay, even if you’ve had substandard performance. And with a back office accounting system, it’s an easy push of the button. Further, use this opportunity to discuss your performance. Put out a short monthly explanation, such as your system caught the stock index plunge, crude futures took an unexpected jump, etc. Here’s how you can explain your trading as well as be professional in distributing your performance on a regular basis.

3) Produce end of day trade files in the format and symbology each counter party wants without staying late to prepare them

Yes, one of the headaches of trading is dealing with the non-trading aspects. For example, brokers, administrators and allocators will want the reporting information in their own formats. Different symbology can be a nightmare: Some groups use C for corn futures contracts while others use ZC and a third want Bloomberg tickers. One broker uses a pricing format in dollars, another uses pennies, and the exchange uses pennies with fractions in eights. For many markets, there isn’t a standard format, and this can be a nightmare for any trader without the proper back office system. But having a system makes it easy. For example, the DMAXX software allows a trader to click a couple buttons to define the symbology of each broker and administrator and once input, it seamlessly formats the reports every month and sends them in the proper format requested by the firm, whether FTP’d or e-mailed securely. The accounting happens automatically as a result of trading.

These are resolutions that can help take your business to that next level. By setting up your back office to output reports in a timely and definable manner, you can show allocators you are ready to grow your AUM. To many allocators, CTAs are a small part of their overall portfolio, however, making your back office work efficiently and effortlessly (for you), an allocator can become a big part of your portfolio.

Dana Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com

Signs you need a new way to run your CTA

: 12 Feb 2015

Like many small businesses, CTAs frequently hold onto processes much longer than they should.  This is particularly true of those related to the operation of the firm.  Inertia, a perceived lack of time to look into better approaches, and short term cost avoidance are a few of the reasons this happens.

While sustainable in the short run, not maintaining and enhancing an organization’s operational infrastructure can be highly detrimental over time as it limits the firm’s ability to adapt to changing market forces and can leave it at a disadvantage compared to other firms.

Compounding this situation is the fee compression that seems to be affecting all advisors.  Given the reduction or elimination of management fees, operations must be as efficient as possible in order to maintain profitability.  Processes that are tedious, error-prone, and not scalable must be reviewed and replaced with ones that are streamlined, automated, and not dependent on any one individual if the firm is to be positioned for long term stability and growth.

While certainly not exhaustive, if any of the following describes your current operation, it’s probably time for you to look into ways to upgrade your processes:

  • Going through broker statements by hand to perform trade reconciliation.
  • Monthly numbers posted during the second or third week of the following month.
  • End of day trade files to send to brokers and administrators are prepared by hand.
  • When a key back office person is sick or takes a vacation, the firm goes into a panic.
  • Values from statements are keyed into Excel to produce performance numbers.
  • Monthly rebalancing is one of the most dreaded activities in the firm.
  • Operational due diligence always has its issues.
  • The mention of another clearing broker puts fear into the eyes of the operations staff.
  • Even though all trading is done electronically, post trade processing involves a series of disconnected operations that are a combination of manual and (hopefully) automated processes.
  • Error rates and long hours are directly correlated with trading volume.
  • Preparing invoices and getting paid from FCMs is a dreaded, manual task that takes hours.
  • Resolving trade breaks is a time-consuming, manual process with lots of cut and paste operations.

Rather than addressing operational issues piecemeal, it is frequently a better strategy to review the entire process and incorporate a toolset that encompasses all aspects of the operation.  Doing so allows you to take advantage of approaches that have been time-tested by a wide range of advisors and at the same time can be faster and less risky to implement than a number of custom, point solutions.

Beyond solving specific, tactical issues involved in running a CTA, the implementation of an integrated operating system also provides the following strategic outcomes for the firm:

  • Simplified, Scalable Operations
  • Minimized Operational Risk
  • Highly Responsive to Investor Data Requests
  • Streamlined Due-Diligence
  • Reduced or Eliminated Trading and Reporting Errors
  • Timely Reporting of Performance
  • Reduced Overhead

This results in making the firm a better place for capital sources to entrust their investment dollars.

One Click NFA Performance Capsule

: 19 Nov 2014

Producing the required NFA Performance Capsule for each of your programs can be a time consuming and error-prone task, especially for advisors with large numbers of accounts or ones with high-turnover.

You must update your disclosure document with this information each month any month where there are material program changes during the month.  In addition, the capsule also contains monthly returns values presented in a table with years across the top and months in the rows.  The specifics of the capsule are contained in the NFA’s CTA disclosure document guide.

TheBooks provides a function that produces the NFA Performance Capsule in the required format for any program defined to the system.  Once produced, you can copy the report and paste it into programs like Microsoft Word to update your disclosure document or other marketing materials.

A sample of the function is shown below:

NFA Performance Capsul

What's new in TheBooks version 3.3.0

: 14 Nov 2014

TheBooks version 3.3.0 is now in production in several customers so we thought we would share some of the new capabilities we have added:

  • The largest change in this release is the support for time zones.  This change affects most areas of the system, but provides the greatest impact in the Data Manager for users of sub-daily bar data.  The time zone support is historical in nature which mean TheBooks now maintains a database of all time zones historically, allowing the automatic recognition of daylight saving time changes around the world.
  • The ability to produce pro forma performance tables for any account or group of accounts.  This allows the actual performance of a program to be re-stated using a standard management and incentive fee schedule.
  • The ability to produce the NFA Performance Capsule and put it on the clipboard for pasting into Microsoft Word and other tools.
  • Support for the Omega function allowing advisors to provide additional risk/return information to the clients and potential clients.
  • Order history and traceability reporting has been significantly enhanced.  All changes to an order (properties, fills, order detail lines, status) are recorded and displayed in the History tab of the order’s properties.
  • Broker statements that come as multiple data files can now be automatically combined into a single file for processing by reconciliation, reducing the reconciliation effort required for these types of statements.
  • The Historic Margin to Equity chart now supports trading size as well as total equity as divisor.
  • Contacts now have a reporting currency allowing automatic restatement of results to the currency of the reciever of a report.
  • Several new reports, including an Instrument Snapshot report that returns Today, MTD, YTD income and returns for markets/sectors and variants of the 13 column performance reports that have advisor fees taking out of the calculations.
  • Support for NDF currencies.

This version is being rolled out to the customer base and is what is installed for new customers.

For more information or to see a demo, contact us via email at  info@dmaxx.com or call 847-234-4969.

Creating Custom Reports in TheBooks

: 13 Oct 2010

Have you ever run a report in TheBooks, and think to yourself, “This report would be perfect if I could just add this one additional column.” We’ve been listening! The latest version of TheBooks now lets you use TheBooks data with Microsoft SQL Server Report Builder to create and customize reports. You can integrate these reports into TheBooks Performance Reports interface. You can make the reports private, usable only by the person adding the report, or public, shared across your organization. You can add your custom logo and your company information, and format the report so that it is indistinguishable from any other reports generated by TheBooks. As with TheBooks standard reports, you can send these custom reports out in any format supported by TheBooks, and to any contacts you have defined within TheBooks.

Creating the Report

To create your custom report, you must first install the Microsoft SQL Report Builder application on your computer. To begin creating a report, open Report Builder and select the Table or Matrix icon.

Report Builder Table or Matrix Icon

You will select TheBooks as your data source, and then begin to design your query. You will select the entity you want to include in your report, and then the fields you want to include from within that entity.

Report Builder Design a Query

Adding fields to your report is as simple as dragging them into the Drag and drop column fields section of the screen. You can also define computed fields to return information that is not available in an entity field. For example, to add net profit to our report, we would drag Change in OTE, Realized Gains, Charged Trading Commissions, and APS Adjustments into the formula bar, and then apply the appropriate operators.

Report Builder Define Formula

You can arrange the fields into rows and columns, and decide if you want to perform any functions, such as total or average a particular field. The Report Builder allows you to add parameters so that you can select a specific set of data to be returned in your report. In addition, you can add filters at the data source, so that only the data that matches our parameters is returned. This allows the report to run more efficiently.

Integrating Your Report into TheBooks

Once you are satisfied with your results in Report Builder, you can then integrate your new report into TheBooks Reports interface. Go to Reports and select the Manage Custom Reports option. You will add the report to TheBooks from this screen, enter the Report Name, a Description of the report, and determine the Visibility, that is, whether it is a public or private report.

TheBooks Manage Custom Reports

Your report now appears on the Performance Reports screen, under the Custom Reports tab. You can now select your Options, which have been determined by the parameters you created in Report Builder, and generate this report from within TheBooks.

TheBooks Custom Reports Tab

The Finished Report

This is a sample of an Instrument Returns by Month report that was created in Report Builder, and integrated into TheBooks. Parameters were defined to specify an account, an account group, and a specific time period. Net profit was calculated for each market grouped by month and totaled by sector. The company logo and company information were added to the header and footer of the report.

TheBooks Sample Custom Report

Summary

I have shown how easy it is to produce custom reports from within Report Builder using the data produced by TheBooks. Creating the reports and integrating them with TheBooks Reports does not require any programming experience as all the necessary capabilities are provided by Report Builder and TheBooks.

Customized Trade Files

: 09 Jun 2010

One aspect of trading managed accounts which can cause a CTA endless headaches is the production of end of day trade files to the various administrators and back offices that are associated with the accounts.

Each organization has their own “standard” file layout and unique requirements for both the file and how the information is to be transmitted.  Add to that symbology and decimal point requirements and the situation can quickly get out of hand.

TheBooks has a robust trade reporting facility which allows the end user to define file layouts and data transmission methods allowing the complete automation of this important operational function.

Here is a quick tutorial to get you started.

The Problem

You have just been given an allocation from a large fund of funds and they have specified that you must provide them a trade file at the end of each day that includes all trades done in their account.  The file is to be sent via sFTP, use CQG symbology, and indicate trade changes from prior days by including correction, cancellation, and new indicators within the file.

The Solution

To set this up in TheBooks, you must do three things:

  1. Define a contact that represents the Fund of Funds and specify the sFTP information to use when sending files to the organization
  2. Define the file layout for the file to be sent
  3. Associate the account(s) in TheBooks to the contact specifying the file layout defined in step two and indicating the frequency the data is to be sent.

Define the contact

Contacts are defined using the Configuration -> Counter Parties option.  From there, you add a new contact, then using the FTP tab on the contact property sheet, define the sFTP information as shown below:

sFTP properties

Configure the file

File layouts are also configured using the Configuration -> Counter Party option.  Clicking on the Outbound Data Formats folder on the left portion of the window displays a list of available formats.  We will be defining a new format, but to make things easy, we’ll start with an existing one as a model.

Selecting the item called “Default Activity Summary Format” and clicking on the Clone button on the toolbar causes TheBooks to create a new file layout using the selected layout as a model:

Custom Data Format

Given the requirements for the file, a few changes to the default settings are required:

  • Both the Action and AllocationRowID columns should be added to the file layout.  This is done by selecting the columns in the left hand list of columns and clicking the include button.
  • CQG should be selected in the Translate Market Symbols using this source combo box.
  • The TranslatedMarketSymbol column should be added to the file because this is the name of the column that contains the CQG version of your market symbol.

The Action column causes TheBooks to generate CANCEL/CORRECT/NEW items in the file enabling trade changes to be reflected in the file and the AllocationRowID column provides a unique number that the receiver of the file can use to associate changes to the trades.

Once this has been done, give the file layout a name and the click OK to create it.

Associate the account

The last step in the process is to link the account with the contact.  This is also accomplished using the Configuration -> Counter Party option.  Click on the folder called Contacts that receive trading activity and click on the New button.

Select the contact and account from the dropdowns, select the Notify options to Daily, send a CSV via FTP in the new format you just defined and click OK.

 Interested Party Definition

That’s all there is to it.  Now, at end of day, the client will automatically receive a data file of trades sent via sFTP containing activity for their account.  Any changes to prior-reported trades will be noted within the file and the market symbols will be CQG symbols rather than the symbology you use.

Summary

Providing customized trade files to investors, clearing brokers, 3rd party administrators, and others can be a daunting task for a CTA with managed accounts.  For users of TheBooks, providing these types of files, customized to each recipient, is accomplished using a few, simple, configuration tasks.

Kildeer, Illinois

Telephone : +1 847 234 4969

E-mail : info@dmaxx.com

FAX : +1 847 234 5184