Please Do NOT distribute this presentation Systematic strategies

Please Do NOT distribute this presentation Systematic strategies Sphera Systematic presents: How to select an Algo-trading machine ? Evaluation from A to Z Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 1 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation Systematic strategies Sphera Systematic presents: How to select an Algo-trading machine ? Evaluation from A to Z Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 2 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit 01

Please Do NOT distribute this presentation Systematic strategies In this presentation… Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 3 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation In this presentation o Glossary: “algo-trading”, “quantitative-trading” “systematic-trading”, does it really matter? Systematic strategies and o Algo-trading machine: communicating with multi-disciplines challenges o “Black-box” evaluation of a given “algo-trading” machine o Sphera algo-trading innovation program o Conclusion Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 4 02

Please Do NOT distribute this presentation Systematic strategies About Sphera group Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 5 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation Systematic strategies About Sphera o Over the past 11 years, Sphera increased its AUM, almost a year by year, from $70 M (2004) to $850 M (2015); Capital was raised from various investors, institutional, family offices & individuals (see graph) o Over the said period, Sphera performed significantly better than Tel-Aviv 100 companies index and MSCI World index (see graph below) $850 M There of Millions USDs Healthcare, in the Israeli($500 M market, byseeking for oo In 2013, are one. Hundreds of our funds, Spheraof. Global now) was ranked Bloomberg Capital™ as one of the top 25 mid-size unique, bysolid and stable financial alternatives; Sphera has hedge a longfunds, term world wide access to many institutional, family offices and individuals o Our goal: Creating and marketing new investment vehicles: systematicmachine(s)-based fund(s) Sphera Strategies You the <space> ininorder more Youmay mayhit the. Systematic <space>bar barnow now. Management orderto to. Ltdread continue Systematic Trading – Where Technology Makes Your Profit 6 03

Please Do NOT distribute this presentation Systematic strategies Glossary Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 7 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation Glossary Systematic strategies o “Algo-trading” = “Algorithmic trading”; A trading machine that generates trading signals (i. e. , decisions: “buy”, “sell”, “short”, “cover”, “add more”, “reduce”, “drop” etc. ) based on a well predefined set of rules and criteria; In many cases, “algo-machine” means also that orders are sent, tracked and handled automatically (no middle man) o “Quant-trading” = “Quantitative trading”; An “algo” machine that generates its trading signals based on quantified parameters which in many cases are meaningless for traditional economics o “Systematic-trading” = all kinds and types of trading machines which generate their trading signals based on a well predefined set of rules and criteria; no discretionary decision is allowed ! Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 8 04

Please Do NOT distribute this presentation Systematic strategies of s l a t n e undam F The algo-trading machines Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 9 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation It’s all about a formula… Systematic strategies o An algo-machine can be described as a collection of formulas; For example, F 1 takes a set of input parameters and under certain conditions generates a trade signal … F 1(P 1, P 2, …. Pn) Buy o Where P 1, P 2, …. Pn are various independent input parameters; For example P 1=Price per share; P 2=Volume acceleration; P 3=High/Low… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 10 05

Please Do NOT distribute this presentation It’s all about a formula… Systematic strategies o An algo-machine can be described as a collection of formulas; For example, F 1 takes a set of input parameters and under certain conditions generates a trade signal … P 1 P 2 P 3 F 1(P 1, P 2, …. Pn) F 2(PAlgo-trading 1, P 2, …. Pn) F 3(P 1 machine , P 2, …. Pn) F 4(P 1, P 2, …. Pn) Pn o … not that simple ! Buy Sell Short Cover Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 11 06

Please Do NOT distribute this presentation Systematic strategies How to create a secret ? o Historical data o Clean of errors and glitches o Clean of gaps in price and volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set o Define “learning” and “training” o Long enough but not too long o Steady state 10: 51 10: 52 10: 53 10: 54 10: 55 10: 56 10: 57 10: 58 10: 59 11: 00 11: 01 11: 02 11: 03 11: 04 11: 05 11: 06 11: 07 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 24. 05 24. 07 24. 08 24. 06 24. 05 24. 03 24. 02 24. 04 23. 90 24. 08 24. 09 24. 10 24. 11 24. 13 24. 14 24. 13 24. 12 12 07

Please Do NOT distribute this presentation Systematic strategies How to create a secret ? o Historical data o Clean of errors and glitches o Clean of gaps in time, price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set o Define “learning” and “training” o Long enough but not too long o Steady state 10: 51 10: 52 10: 53 10: 55 10: 56 10: 57 10: 58 10: 59 11: 00 11: 01 11: 02 11: 03 11: 04 11: 05 11: 06 11: 07 11: 08 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 24. 05 24. 07 24. 08 24. 05 24. 03 24. 02 24. 04 23. 90 24. 08 00. 00 24. 11 24. 13 24. 14 24. 13 24. 12 24. 11 13 07

Please Do NOT distribute this presentation Systematic strategies How to create a secret ? o Historical data o Clean of errors and glitches o Clean of gaps in time, price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set o Define “learning” and “training” o Long enough but not too long o Steady state 10: 51 10: 52 10: 53 10: 54 10: 55 10: 56 10: 57 10: 58 10: 59 11: 00 11: 02 11: 03 11: 04 11: 05 11: 06 11: 07 11: 08 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 24. 05 24. 07 24. 08 24. 05 24. 03 24. 02 24. 04 24. 05 24. 06 24. 08 24. 10 24. 11 24. 13 24. 14 24. 13 24. 12 24. 11 14 07

Please Do NOT distribute this presentation Systematic strategies How to create a secret ? o Historical data o Clean of errors and glitches o Clean of gaps in time, price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set o Define “learning” and “training” o Long enough but not too long o Steady state 10: 51 10: 52 10: 53 10: 54 10: 55 10: 56 10: 57 10: 58 10: 59 11: 00 11: 02 11: 03 11: 04 11: 05 11: 06 11: 07 11: 08 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 24. 05 24. 07 24. 08 24. 05 24. 03 24. 02 24. 04 24. 05 24. 06 24. 08 24. 10 24. 11 24. 13 24. 14 24. 13 24. 12 24. 11 15 07

Please Do NOT distribute this presentation How to create a secret ? Systematic strategies o Historical data o Clean of errors and glitches o Clean of gaps in time price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set o F (P , …. P ) 1 1 2 n Define “learning” and “training” Action o Long enough but not too long Lack of parameters or relying on correlated parameters will yield destructive results ! o Steady state Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 16 07

Please Do NOT distribute this presentation How to create a secret ? Systematic strategies o Historical data o Clean of errors and glitches Learning o Clean of gaps in time price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible Training o Learning set and Training set(s) o Define “learning” and “training” Develop your secret(s); for pattern(s) Checknot your. Search findings; Teststatistical your secret formula o Long enough but too long Always use data that has never been used (seen) before o Steady state Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 17 07

Please Do NOT distribute this presentation How to create a secret ? Systematic strategies o Historical data o Clean of errors and glitches L Learning T Training o Clean of gaps in time price or volume o Sufficient resolution o Cost of data o Independent parameters o As many as possible o Learning set and Training set(s) o Define “learning” and “training” o Long historical data (T >>> L) o Far history vs. near present o Over fitting Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 18 07

Please Do NOT distribute this presentation Systematic strategies Go to market… o Jump Get real from market intotime colddata water… o Use broker in order to send & track orders Cost acy r u c c A Delay ed Detail Market Data provider Cos Del t ay P 1, P 2, …Pn Algo machine Broker Buy, Sell, Short, Cover, Add, Reduce… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 19 08

Please Do NOT distribute this presentation Systematic strategies Go to market… o The broker may divide the original order among various brokerage firms Broker Cost acy r u c c A Delay ed Detail Broker Market Data provider Split rice Return p lity Availabi Algo machine P 1, P 2, …Pn Return price vs. Historical data Broker Buy, Sell, Short, Cover, Add, Reduce… You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Sphera Systematic Trading – Where Technology Makes Your Profit 20 08

Please Do NOT distribute this presentation Systematic strategies Go to market… o Transparency? Please meet the “dark pool” technology Broker Cost acy r u c c A Delay ed Detail Broker Market Data provider Cost yone r e v e r o Not f closed) s i d n u ( le OTC-sty P 1, P 2, …Pn Algo machine Broker Buy, Sell, Short, Cover, Add, Reduce… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit Dark pool 21 08

Please Do NOT distribute this presentation Systematic strategies Go to market… o What do you mean by “market” ? Market Cost acy r u c c A Delay ed Detail Market Data provider Market P 1, P 2, …Pn Algo machine Split rice Return p lity Availabi Market Broker Buy, Sell, Short, Cover, Add, Reduce… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 22 08

Please Do NOT distribute this presentation Systematic strategies Go to market… o It’s not just about trading signals …. You need to know how to route your orders… Market Cost acy r u c c A Delay ed Detail Market Broker Market Data provider Market P 1, P 2, …Pn Algo machine Broker Market Broker Execution algorithm Buy, Sell, Short, Cover, Add, Reduce… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit Dark pool 23 08

Please Do NOT distribute this presentation Algo-machine performance ROI vs. Investment ROI (%) Systematic strategies • Commission • Extra payments • Indirect cost of operation Saturation Stabilization point • Split & Return price • % of filling • # of Opportunities Size of Investment 1 2 3 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 24 09

Please Do NOT distribute this presentation Algo-machine performance ROI vs. Investment ROI (%) Systematic strategies • While area-1 is not profitable, area-3 is considered as “unstable area” • A stable algo-machine should “stay” in the “blue” area (the “working area”) Max. Investment Scalability Working area 1 2 Size of Investment 3 Sphera’s scope of interest: > $50 M Sphera’s investment policy: < 25% of AUM Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 25 09

Please Do NOT distribute this presentation Algo-machine performance ROI vs. time ROI (%) ROI-Y Selected working point Systematic strategies • If we work inside the “working area” we should be able to achieve a given ROI per a given investment; Well …. Investment-X Size of Investment 2 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 26 09

Please Do NOT distribute this presentation Algo-machine performance ROI vs. time Systematic strategies Investment-X ROI (%) ROI-Y Market Algo machine Time • Observation: ROI decay over time • Explanation: The learning and training sets do not represent the current market situation • Solution: Built-in or external (forced) calibration Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 27 10

Please Do NOT distribute this presentation Systematic strategies Another building block… o It’s not just about trading signals …. You need to know how to route your orders… Market Cost acy r u c c A Delay ed Detail Market Broker Market Data provider Market P 1, P 2, …Pn Algo machine Broker Market Broker Execution algorithm Calibration algorithm Buy, Sell, Short, Cover, Add, Reduce… Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit Dark pool 28 11

Please Do NOT distribute this presentation Systematic strategies A full algo-machine Signals algorithm Generation of trading signals Execution algorithm Calibration algorithm Control of orders routing Decay detections & parametric calibration Allocation algorithm Budget allocation Risk control algorithm Data collection system Recovery algorithm Leverage & hedging algorithm Collection of real time data Survival and recovery of orders Sphera Systematic Ltd You may hit the <space>Strategies bar now. Management in order to continue Systematic Trading – Where Technology Makes Your Profit 29 12

Please Do NOT distribute this presentation Systematic strategies Black-Box evaluation Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 30 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation Black-box evaluation Systematic strategies o The challenge: evaluate future “behavior” of a given algotrading machine without using its secret formula… o The key data we need: log of real-money trades (easily provided by the brokerage firm) o Each log row describes a certain executed order: Date 05/11/11 Time 10: 33: 05 ABCD BUY $12. 05 Ticker Action Price 3000 Quantity $2. 50 Commission o Split orders will be reported in two separated rows: 05/11/11 Date 10: 33: 05 “ 10: 33: 06 05/11/11 Time ABCD BUY $12. 05 Ticker Action Price “ ABCD “ BUY $12. 07 Price 1800 Quantity $2. 50 Commission 1200 Quantity 0 Commission Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 31 13

Please Do NOT distribute this presentation Systematic strategies Black-box evaluation o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . Date Time Ticker Action Price Quantity Commission Date Time Ticker Action Price Quantity Commission Date Time Ticker Action Price Quantity Commission Date Time Ticker Action Price Quantity Commission Date Time Ticker Action Price Quantity Commission Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 33 13

Please Do NOT distribute this presentation Black-box evaluation o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . o Win/Lose ratio Maximum gain Winning trades, organized from max. gain to min. gain Systematic strategies Losing trades, organized from min. Maximum loss to max. loss # of L # of W Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 34 13

Please Do NOT distribute this presentation Black-box evaluation Systematic strategies o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . o Win/Lose ratio 70% 70 % # of W # of L W area L area = > 1, < 2 >> 2 70% * W area 70% * L area >= 2 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 35 13

Please Do NOT distribute this presentation Systematic strategies Black-box evaluation o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . 70% o Win/Lose ratio Max. Investment 70% of trades 70 % o Budget utilization o Leverage control Investment Av. Investment Time Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 36 13

Please Do NOT distribute this presentation Systematic strategies Black-box evaluation o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . PPS o Win/Lose ratio Av. Gain in $ o Budget utilization o Leverage control Av. Loss in $ 70% Volume o Price sensitivity 70% o Assets distribution Symbol Symbol 1 2 3 4 5 6 7 8 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 13

Please Do NOT distribute this presentation Systematic strategies Black-box evaluation o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . Investment Market Long Short o Win/Lose ratio o Budget utilization Time o Leverage control o Price sensitivity o Assets distribution o Exposure Level o Market correlation Trades 100% 50% Market Long Short Time Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 38 13

Please Do NOT distribute this presentation Black-box evaluation Systematic strategies o By report analysis, a trade-bytrade simulation, we can inspect critical parameters such as. . . o Win/Lose ratio o Budget utilization o Leverage control ROI o Price sensitivity o Assets distribution Window size o Exposure Level o Market correlation o Performance stability 10% 50% Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 100% 39 13

Please Do NOT distribute this presentation Black-box evaluation Systematic strategies o The main objective of the black box evaluation is to estimate how wide is the “blue” area, how “far” the maximum investment point is “located”, and how slow this “blue line” moves from the “stability point” down to the “saturation point” Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 40 14

Please Do NOT distribute this presentation Systematic strategies SSIP Sphera Systematic Innovation Program Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 41 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation SSIP Systematic strategies Sphera Systematic Innovation Program • Sphera group is focusing on managing of hedge funds and financial products; NOT in developing of algo-trading machines • We are NOT a Venture Capital (VC) fund; Sphera Systematic is NOT willing to take any managerial position in any algotrading venture; We have NO intention to invest in the algotrading venture or take any kind of holdings of ownership • We are NOT interested in exploring the inside secrets or IP of the algo-trading machine • We ask for no exclusivity … T O N e r a e W Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 42 15

Please Do NOT distribute this presentation SSIP Systematic strategies Sphera Systematic Innovation Program • We are seeking for good financial products, i. e. , algo-trading machines, that meet the following requirements: § Operational time: >= 12 months § Av. actual exposure: > $500 M @ Leverage < 1. 5 § Budget utilization: > 70% @ 80% of time § Potential capacity: > $50 M (potential or actual) § Potential Annual ROI : >= 8% - 10% @ $50 M § Max. monthly Draw-down: <= 4% § Av. monthly Draw-down: <= 2% § Win/Lose trades ratio: > 1, < 2 § Gain/Loss trades ratio: >> 2, > 2 @ 70% of trades § Best trade/Worst trade: > 3 Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 43 16

Please Do NOT distribute this presentation SSIP Systematic strategies Sphera Systematic Innovation Program • • • • • Investment Software tools committee Investment manager Sign mutual NDA doc Due Diligence Simulate Add trade amount by trade Fundsmall manager Protect entrepreneur’s Questionnaire Analyze actual Best execution secrets, IPs Hundreds ofetc. questions performance Cross Trading Persistency Reporting Consistency … more Sphera systematic NDA DDQ Report analysis Wet test Fund agreement Go… Sphera group Not less than 6 months Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 44 17

Please Do NOT distribute this presentation Systematic strategies Conclusion Buky Carmeli - CEO Buky@spherafund. com Cell: +972(54)930 -6157 / 21 Ha’arba’ah st. Tel Aviv, Israel 45 Sphera Systematic Strategies Management Ltd Systematic Trading – Where Technology Makes Your Profit

Please Do NOT distribute this presentation Conclusion Systematic strategies o “Algo-machine” is a very complicated machine; It requires deep understanding in wide range of areas: mathematics, statistics, computing, engineering, capital market structure, trading mechanism … and we didn’t mention yet funds raising, fund management and more; The founder must reflect strong personality o The “algo-trading” technology is NOT a replacement to traditional trading style; Its another way to utilize the modern technology in order to enhance the capital market liquidity and create more trading opportunities o Sphera group, the largest Israeli HF management group, will announce its first systematic-based financial product within a few months; Some building block of this product are Israeli ventures that have been explored over the past 6 -7 months Sphera You may hit the. Systematic <space>Strategies bar now. Management in order to. Ltdcontinue Systematic Trading – Where Technology Makes Your Profit 46 18