Proof Trading Progress Update: 12 Months

It’s been a whole year since we started Proof! This past quarter was no doubt our most productive, and we anticipate it only ramping up further from here. We’re currently in full heads down mode working towards launch, especially on the research and development fronts. Everything is still on track for our target mid-2020 go live.

Major updates

• Completed our seed fundraising round. We now have enough capital to get us well beyond launch and hopefully even to profitability.
• Made substantial progress on the regulatory and technology fronts.
• Published several pieces of content including a white paper on stock market simulation and a technical review of algorithmic trading system databases

Goals from our previous update

• Build a robust research environment with production-grade historical market data capabilities, and make significant progress toward identifying an appropriate combination of execution quality metrics by which to optimize our trading strategies.

(7/10) We selected OneTick as our research environment, and we have made substantial progress on the research front, but we do not yet have candidate execution quality metrics.

• Implement core system frameworks. Design and develop foundational components of the platform, such as high-performance messaging middleware and UX frameworks.

(8/10) We have completed the design and implementation of the core architectural components and frameworks that will drive our trading system, and made significant progress on the UX components as well.

• Select vendor(s) for real-time and historical market data.

(10/10) We selected Exegy as our real-time market data provider and OneTick for historical market data.

• Begin development of business components such as the Client FIX Gateways, the Market Data Service, and the Order Management System.

(4/10) We did some work on the FIX engine to be used within the FIX Gateways, but we will tackle the rest of the business components in the coming months.

• Develop an automated system integration test process that can become part of the CI/CD process.

(8/10) We selected the Robot Framework for our system integration testing, and have been pleasantly surprised with its capabilities and flexibility. We will continue to expand our test suite to include more steady-state operation as well as failure scenarios.

• Make significant progress toward obtaining broker-dealer license (e.g. file Form NMA).

(8/10) We set up a subsidiary to house the broker-dealer (Proof Services LLC), hired an outsourced FINOP, and engaged several third party technology vendors as well as a PCAOB auditor. Proof Services filed Form BD in November and we expect it will submit Form NMA in the next couple of weeks.

• Identify top three candidate clearing partners.

(10/10) We have signed a letter of intent with our expected clearing partner. We still need to hammer out a formal agreement, but barring unforeseen circumstances, we should be all set on this front for launch!

• Initiate conversations with at least 5–10 major EMS providers.

(3/10) We have spoken with 3 EMS providers so far, but the conversations are still very preliminary. We will ramp up on this front during this next quarter.

• Continued focus on buy side engagement and producing content.

(7/10) We produced a substantial amount of new content, and we began a major new initiative: helping prospective customers analyze their historical trading performance.

Goals for the next 3 months

Technology

• Continue the build-out of the business components of the trading system such as the FIX Gateways (client-facing and venue-facing), the Market Data System, the Order Management System, and the Algorithmic Trading Engine.
• Select an extranet provider and establish our venue access strategy for lit as well as dark venues.

Regulatory

• Proof Services should file Form NMA and be extremely responsive to any follow-up requests from FINRA.

Product/Research

• Select a base feature set for our historical simulation approach and measure its predictive strength.
• Craft our first iteration of execution metrics and present the full process of their design.
• Design the first iteration of our core trading algorithm.

Sales

• Continued focus on buy side engagement and producing content.

Operations

• Begin integration with approximately 5 major EMS providers and be on track for production-readiness at launch.

Here are our full updates across the board:

Technology

• We have created the design and initial implementation of a distributed, highly-available trading system that can run in the cloud and operate at sub-millisecond timescales.
• We selected Simple Binary Encoding as our internal binary messaging format.
• After a series of infrastructure tests, we selected AWS as our cloud provider for its maturity, consistency, and performance.
• We conducted a deep review of possible algorithmic trading databases and selected MemSQL for our production environment.
• We established an SDLC process using the Atlassian tool set (Jira, Confluence, Bitbucket).

Regulatory

• We established a subsidiary that will house the broker-dealer (Proof Services LLC).
• Proof Services either engaged or signed letters of intent with a number of partners including Patrina and Global Relay for FINRA-compliant electronic record retention, an outsourced FINOP (Cartana Consulting), and a PCAOB auditor.
• Proof Services submitted Form BD to FINRA and is nearly ready to submit Form NMA which is the main application for becoming a broker-dealer. We anticipate Form NMA will be filed within the next couple of weeks. Proof Services also obtained an MPID: PRFT.

Product/Research

• We selected OneTick as our historical tick data analysis and research platform. We will be publishing a blog post on our evaluation and selection process in the coming weeks.
• We published a white paper detailing one approach we’re taking of researching trading behavior through historical stock market simulation. Hopefully these efforts lead to insights that fuel our algorithm design and optimization.

Sales

• We recently began a new initiative: performing execution analysis for the buy-side. So far three firms have either already sent us their trade data or are in the process of gathering it for us, and we have begun diving into their historical performance. We’re not charging for this service, and we don’t anticipate it becoming a separate business line, but we do intend to make performance measurement a centerpiece of our offering, at the very least for trades executed through our platform. For the time being, we expect this initiative will be mutually beneficial as we have a good deal of experience studying execution quality in our previous jobs, and we think we can provide some genuine actionable insight into trading behavior and outcomes (as opposed to most off-the-shelf TCA offerings which are designed to “check the box” to satisfy the bare minimum regulatory best execution obligation). In the past we’ve spent the majority of our focus on extremely micro-level metrics, such as sub-second trade markouts. We continue to believe that measuring these zoomed-in statistics has value, but we acknowledge that high-level measurements, while certainly noisier, are probably even more important. By working closely with our buy-side counterparts, we believe we can learn from their experience and intuition and in turn build better trading algorithms.

Operations

• We raised a seed round which gives us approximately two years of runway assuming no revenue.
• After evaluating 12 potential partners, we have selected our clearing firm: APEX Pro (the new entity formed by the acquisition of ETC by APEX)! This arrangement is one of the critical pieces for our business, and we’re very excited to have it settled.