Trading Dashboard - P&L Drop Investigation Example

The trading dashboard in Compass allows us to quickly view PnL and VaR swings, determine which instruments and positions cause them, and address drops with a superior Time-to-Action. See Trading Dashboard - P&L Trading Tab to understand more about the charts available.

Here, we can see a large PnL drop in the A-Book, with the sharpest fall between 04:07-04:38

Moving the cursor over the assets in the tables highlights their respective plots on the graph. Here, we can see on the Reval P&L attribution graph, AUD has a significant drop, in line with the total A-Book PnL drop. Hovering over the drop in either graph will display the time values to confirm this.

Filtering by AUDUSD makes this clearer. Note, AUD is now coloured gold.

Here, we can see the yield profiles in Echo for AUDUSD trades placed between 04:07:00.00 and 04:35:00:00, during the sharpest fall in PnL. As expected, we see very poor yield for HOUSE for trades placed during this drop. The execution profile column (Catch-all) tells us that we may need to refine our execution rules to ensure these clients or similar are identified, and hence we could look to broker this flow. We would need to determine whether these were lucky one-off trades, or whether these clients impact our PnL on a regular basis.

We can investigate whether these 4 counterparties made lucky trades, or whether they classify as toxic flow over the medium term. To start investigating, remove the AUDUSD filter and extend the time range back e.g. 4 weeks this will help us identify trends and validate the Statistical Significance of the data.

This yield profile clearly shows toxic flow over the past 4 weeks, from these 4 counterparties across all instruments. Note - it is important to check volumes as you extend the time period the yield profile encompasses, as large volumes of trades in any one period will dominate the yield profiles as you look further back. In this case, the counterparties showed toxic flow week-on-week.

Now, we can check the execution rules in the Distribution tab in Compass. We can see that there is only 1 execution profile (‘Broker’) under the ‘ABOOK EXECUTION’ rule, and that those 4 counterparties are not included in the counterparty criteria, and hence their trades will be executed under the ‘Catch-All’ profile, which in this case internalises any trades.

In this case, these counterparties were added to the broker execution profile, and a new execution profile with criteria ‘Dynamic Counterparty’ was added to broker similar future flow. See Execution Rules - Tailoring the quality of execution to the quality of client and Execution Rules - Tuning for more information on how to manage execution of identified toxic flow.

Also see Automated Counterparty Classifier - Overview for automation and reduced time to action on identification on this type of flow.