ANALYSIS: KRM22 winning key clients for trading limits manager

London-based KRM22 launched its Limits Manager application in mid-2022, having developed the product from an idea being worked on by a Dutch firm acquired by KRM22 in 2018.

Since launch, Limits Manager has secured as clients some of the world’s top FCMs including Marex and RJ O’Brien who use the tool to manage the trading limits they apply to their clients, a complex function that has been largely overlooked by technology vendors.

Dan Carter, the chief executive of KRM22 who assumed that role one year ago, said independent software vendors (ISVs) have pre-trade limits embedded but the problems arise when a large FCM is using multiple vendors, which is normal.

Carter said: “If you are big FCM you could have as many as seven or eight ISVs that you have to manage limits in and, on top of those, there are exchange-level limits so the execution services team in an FCM is faced with this massive job.”

Changing a client’s trading limits has typically been a laborious process which involves proposed limit changes being sent to the risk team for approval and (if approved) the execution management team manually updating the client account in the relevant trading system.

Carter said: “Rewind two or three years, no-one had a system that allows you to manage that workflow and approval process across all of your systems. So we built an application and integrated it via API into the ISVs and exchanges, which pulls all of that data into one application.”

The KRM22 Limits Manager streamlines the workflow to enable these various steps and, crucially, offers clients a full audit trail.

“Historically, if someone comes in and says we need to see the approvals on every account for a specific time period, that can be a huge undertaking whereas in our system they have a full audit trail of who submitted the change, who approved the change and at what times,” Carter said.

“The second benefit is that, because you are consolidating all the limits in one place across the ISVs and exchanges, it is much easier to interrogate the data and say: “Show me everyone in my universe that has limits on LME nickel, for example.”

Carter said historical fines imposed on futures brokers for not properly managing the limits approval process or having inappropriate (typically huge) limits in place for small clients has helped focus minds.

The CEO went on to say Limits Manager working with KRM22’s main Risk Manager solution also offers key insights. “Because we have moved the risk engine to new world order technology, we can now integrate the risk side with the limits side so when you enter that ticket to say you want to extend that limit from 50 to 75, on the same screen we can show you all your real-time risk metrics such as P&L, margin, stress scenarios and VaR. When you hit approve or reject, we save those numbers in the audit trail so firms can demonstrate why they made a specific decision.”

Two of the nine FCMs using Limits Manager are also using KRM22's Risk Manager. There are another 15 firms including StoneX using the risk management platform.

Carter is keen to stress KRM22 does not dictate risk controls or risk procedures, rather its aim is to enable its clients to implement and demonstrate their own risk management frameworks.

“We are not trying to tell firms how to manage risk, rather our applications with both sides talking to each other allows the client to configure their own rulebook, police it and evidence it to either internal audit or external regulators.”

Three years ago the futures industry was trying to navigate the extreme volatility caused by the Russian invasion of Ukraine, which ultimately led to the closure of the London Metal Exchange nickel market after the price of that metal spiked, leaving some LME members unable to make their margin calls.

Carter said the futures industry learns from these experiences: “These events sharpen everyone’s focus in terms of, in those moments, how did we react as a firm? I think it focuses minds around the process of those events, and how do we as individuals and as firms manage those crisis moments, which puts a focus on technology.”

The KRM22 CEO concluded: “If you don’t have the right technology running in the right way offering easy access to the data points that you need at that time, then your crisis management is going to be poorer as a result. I think the industry is better placed from a process perspective but I’m not sure firms are all the way there from a technology perspective.”