Or, in roughly the same amount of space, you can house a stock exchange. Or two.
Such is the case with EDGA and EDGX, the two newly approved stock exchanges owned by Direct Edge, which formally debut July 21 in Secaucus, N.J. As competition in securities trading venues goes up, so does the drive for speed and “scalability,’’ the ability to expand rapidly and reliably.
Because Direct Edge, like other venue operators before it, takes its approval to operate full-fledged exchanges as a sign that it is here to stay, competing on the same fields as the New York Stock Exchange, Nasdaq Stock Market and BATS Exchange. And, concomitant with that, Direct Edge wants to prove that it can.
“What Direct Edge is trying to do is build a company that can be an enduring part of the exchange community for a long time,’’ said chairman and chief executive William O’Brien. “And that transition to exchange status is part of that evolution.’’
The economic benefits (see “Benefits, and Costs, in the Life of an Exchange”) and the prestige may be big factors. And the transformation of its alternative venues into full-fledged exchanges and the technology transformation that has gone with it may just be the price of keeping up with rivals.
“It’s a hypercompetitive environment,’’ said Sang Lee, managing partner of the Aite Group, a Boston industry consulting firm. “You’re literally gouging each other’s eyes out for a sort of single-digit market share” in the Unite States.
The changeover of its venues into exchanges and the near-complete makeover of its technology are necessary steps for Direct Edge “ to continue to grow,’’ Lee said on the eve of the launch of both.
But Direct Edge’s stage is not large. It does not have to be.
NO FLAG
Unlike the New York Stock Exchange, you won’t see a monster-sized flag draped over where Direct Edge operates the new trading platforms that will power EDGA and EDGX. The two exchanges sit side by side, in a black wire cage inside a nondescript industrial building that could just as easily hide a distribution warehouse.
Inside the cage are 80 racks of Hewlett-Packard ProLiant servers and related memory storage units. Anywhere from two to 14 servers sit in each rack. About 200 servers, per exchange. By H-P’s estimate, this generation of “convergent” servers – which include processing capacity, memory storage, networking features and energy efficiency – puts the same amount of computing power in a single box as was found in 21 boxes four years ago.
Spare servers in this cage provide immediate backup, in case of failure. A second cage with copies of the entire EDGA and EDGX trading exchanges sits in another nondescript building in North New Jersey, just in case.
It’s a major transformation for a company which started a dozen years ago as an electronic communications network known as Attain. Back then, Attain was trading just 1 million shares a day. “Nobody paid any attention to it,’’ said Lee, when it was owned by All-Tech Investment Group. In fact, the most notoriety came when a day trader went on a shooting spree at All-Tech and one other firm in July 1999, leaving nine dead.
Now Direct Edge is owned by the International Securities Exchange, Knight Capital Group, Citadel Derivatives Group and The Goldman Sachs Group. The company “has literally outpassed everyone that was ahead of them, in two or three years,’’ said Lee. “To me, that’s impressive.
The new platform developed, constructed and installed over the last 18 months replaces a single data center, which had topped out in its ability to handle data about market conditions and transactions at 60,000 messages a second.
The new setup is a Windows-based system based on Intel Xeon 5500 processors, also known as Nehalem, announced last year. Where Direct Edge’s servers before processed 32 bits of data a time in a single thread of information at a time, now each processor handles 64 bits of data at a time, in multiple threads. Each Xeon processor, in fact, has multiple “core” processors on it. Each has two electric sockets. Each of those sockets accepts a circuit with four “core” processors on it.
So each server in Direct Edge’s racks actually has eight computers built in. And each of those processors can handle two threads of logic at once.
Which, in the case of EDGA and EDGX, now means that each order that comes in can be assigned its own thread.
This may seem simple and relatively straightforward. But in the push for speed and reliability, it makes it also possible to create systems that achieve both at the same time, in other simple ways.
DOUBLING DOWN
For instance, each order that comes in gets published twice. In effect, two copies of the order get sent to one of the exchange’s matching engines, according to chief technical officer Steve Bonanno.
That does not mean that the order gets completed twice. Instead, each order that comes in is sent in the same exact sequence to a pair of matching engines running on different servers. Each engine processes every order in a given set of symbols. But when the first message that an order has been processed is sent back to a subscriber, the other is discarded.
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