Chasing Speed

Terry Flanagan

Speed continues to be the name of the game for market participants.

Securities exchanges continue to look toward avenues of lowering latency and increasing speed for their participants.

“Speed remains important, it’s become the norm,” David Herron, chief executive officer of the Chicago Stock Exchange, told Markets Media. “Unfortunately, a couple of thousand miles is an issue.”

Because of that, the CHX is looking to open a new data center on the east coast in an effort to lower execution times for its clients that have data centers in the New York and New Jersey area. The new data center will handle its Tape A matching engine, while it Tape B matching engine will remain in Chicago.

“We need to be closer to the bulk of the firms in New York and New Jersey data centers to limit data transmission lag,” said Herron. “It will help as far as reducing execution time, turnaround time, and will help with cross connecting.”

The exchange will hope that the move can help boost its market share, which has been on the decline in recent years. Its U.S. equities market share currently stands at 0.28% as of last month. This is down from the 0.41% seen in 2009 and 0.36% in 2010.

Speed is invariably coveted by certain types of investors, most notably high-frequency and algorithmic traders. Many exchanges and venues are looking for ways to attract more HFT firms, with the ever-increasing emphasis on lowering latency and increasing speed. The International Securities Exchange continually upgrades its trading engine, Optimise, in an effort to minimize latency. The Singapore Exchange touts the speed of its order matching engine, Reach, as the fastest in the world.

CME Group recently announced that its co-location services, which will include hosting, connectivity and support services, will go live on Jan. 29, 2012. It is one of among many exchanges worldwide looking to increase the speed and lower the latency of their trading platforms, which most directly benefits high frequency traders. Co-location facilities are located as close to their machine engine as possible, giving trading firms, including HFT firms, nearly instant execution times. HFT has grown to about 75 percent of trading volume in the U.S., according to industry estimates.

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