Time is quite literally money. And that money gets measured in the milliseconds, now.
The New York research firm Tabb Group has estimated that if a broker's electronic trading platform is five milliseconds behind the competition it could lose at least 1 percent of its order flow - or $4 million in annual revenue per millisecond. That means that, despite budgetary constraints, there's a payoff in spending on new technologies to increase the speed of exchanging data and executing transactions.
There's even a thriving business to be had in "latency arbitrage," which focuses on fast and frequent trading. In fact, so-called "high frequency traders" will constitute at least 73 percent of U.S. trading volume this year, estimates Tabb Group.
The need to reduce latency goes hand in hand with the need to surging volumes of messages in both equities and listed options. Also driving factors: The emergence of electronic communication networks (ECNs), the advent of smart order routing systems and algorithmic trading engines as well as the increasingly divergent sets of data needed to support complex decision-making systems. All of which means firms must rearchitect their infrastructure for high-performance data management.
"Firms must reduce their operational costs without sacrificing revenue-generating activities while adapting their market data infrastructures to cope with exponentially growing projected market data volumes," said Terry Roche, global head of information management solutions for Thomson Reuters, which hosted a seminar in June concurrent with the Securities Industry and Financial Market Association's Technology Management conference in New York late last month.
There is no dearth of solutions being offered by software and hardware suppliers, as evidenced by exhibits at the Sifma event. Many of the options showcased at the conference involved hardware acceleration - the use of built-in circuitry to perform functions faster than possible with software running on general purpose processors. Multithreading is often used hand-in-hand with multicore processor technology, to bolster performance.
"We have adopted a phased approach to address the challenge of redesigning software components for multi-threaded processing," said Roche. "The first area of our approach has been on the ability of point-to-point servers to deliver data to multiple consumers of data."
Next month, Thomson Reuters will introduce a new multi-threaded Advanced Distribution Server (TRADS), which Roche claims is designed to get the most performance out of multicore processors. During internal testing, TRADS was able to handle as many as 25 million updates per second using an industry standard hardware configuration; Intel Xeon 5500 processors and a Cisco 5020 Nexis 10GigE switch.
Also depending on hardware-based accelerated messaging capabilities, Solace Systems unveiled a new version of its Content Router platform as the Unified Messaging Platform. The new UMP will rely on a single hardware device and a single programming interface for applications that will reduce message transport delays for market data and wide area network distribution. The upgraded platform has reduced the time for the delivery of guaranteed messaging-messages that must be shared between back-office systems - from 200 microseconds to 100.
"Historically, companies have had to cobble together their application infrastructure with one vendor's guaranteed messaging solution, another's queuing solution, and yet another's low latency solution, then tie them all together with commercial and home-grown adapters," said Larry Neumann, senior vice president of Solace, headquartered in Ottawa, Canada. "Solace's Unified Messaging Platform eliminates the need to rely on multiple vendors and reduces the amount of hardware needed."
The messaging product costs about $100,000 to $200,000 for a typical deployment, which comes out to 50 percent to 75 percent less than buying, operating and maintaining software from multiple vendors, asserted Neumann. Barclays Capital is using the latest version of Content Router as its global middleware architecture to tie together different software applications.
Low-latency data aggregator Activ Financial said that its use of hardware acceleration technology to speed up its data processing has freed up computing cycles to allow its server and client applications to communicate through shared memory. As a result, Activ could upgrade its application programming interface (API) to reduce latency between its server for managing market data and third-party applications used by its customers to distribute that data to applications that act on the information.
29West claims its new UltraMessaging for the Enterprise (UME) platform is faster than any system using hardware accelerated message routers because it doesn't require any message routing software. Instead, the product line relies on what Direct Edge calls parallel persistence architecture to provide quick application-to-application messaging without local daemons and messaging servers slowing down message delivery.
At the conference, Jersey City, N.J.-based equity electronic communications network operator Direct Edge said it will replace Tibco Rendezvous as the messaging software for its EDGA and EDGX trading platforms with 29West's UltraMessaging platform. The switch is expected by year-end when Direct Edge hopes to win exchange status for the two ECNs from the Securities and Exchange Commission.
Handling more volume without upgrading hardware was key. DirectEdge's share of the U.S. equities trading market has more than doubled, from 5 percent to more than 12 percent in recent months. Direct Edge's decision was made far easier by the fact that the ISE Stock Exchange (ISX), which it has been operating since December 2008, also changed from Tibco middleware to the UME last June.
"With the UME serving as the messaging backbone for the exchange, Direct Edge can realize an overall reduction in latency and increased throughput by more than 50 percent," said John Ryan, chief software architect for Direct Edge. The increase in operational efficiency, will in turn, said Ryan, result in savings in hardware costs from the need to use fewer servers.
This article can also be found at SecuritiesIndustry.com.
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