Race to Zero an Uphill Climb08.07.2012
In the race to zero, costs are escalating past the point of no return, prompting firms to look beyond raw speed as the sole determinant of trading system performance.
As it pertains to the speed race, the costs of maintaining an ultra-low latency infrastructure are becoming exorbitant, market experts say.
“Attempting to approach zero latency assumes infinite cost,” said Ian Bowell, head of technology in the Americas at Options IT.
“The degree of dedicated hardware, engineering, software, management and staffing for such speed eliminates any opportunity for economy of scale or profitability through scalability as each iteration is as expensive as the next with no opportunity for increased margin as the customer base grows,” Bowell said.
Beginning with the ‘flash crash’ of May 2010 when the Dow Jones Industrial Average index plunged 1,000 points, almost 9%, only to recover within minutes and more recently with the bungled IPOs of Facebook and Bats, exchanges, regulators and market participants have been analyzing the trade-offs between speed and reliability, and most agree that it’s a delicate balancing act.
“Being able to control and manage that distributed architecture with measured results is now not just about speed, it’s also about cost,” said Chris Pickles, head of industry initiatives at BT Global Banking & Financial Markets.
Options IT offers PIPE Velocity, an ultra-low latency market data, execution connectivity and application management service.
Redkite Financial Markets, a specialist provider of real-time market surveillance systems, has deployed its flagship market surveillance product, Redkite Surveillance, on the Options PIPE Private Financial Cloud, enabling exchanges, sell-side firms and buy-side firms can establish a compliant surveillance platform within days, rather than weeks or months, according to Options IT.
NYSE Technologies, the commercial technology division of NYSE Euronext, provides critical infrastructure to the financial community via its Secure Financial Transaction Infrastructure (SFTI) network, which also serves as the connection to NYSE Euronext markets globally.
“Rather than firms buying their own lines, which is increasingly expensive as more international content is required and available; we look for ways in which customers can reuse their existing access into our backbone to receive other services,” said Ian Jack, head of U.S. infrastructure at NYSE Technologies.
“Offering a shared backbone gives us the scale to achieve cost savings but also ensure that the network is reliable, secure and has no single point of failure,” Jack said.
Prior to joining Options IT in May, Bowell was chief technology officer at Fauchier Partners, a BNP Paribas investment partner and leading global funds of hedge funds based in London, where oversaw the fund’s technology platform, including outsourced software development and upgrade of the infrastructure for the fund, which has over $7 billion in assets under management.
It makes sense to arrive at a profitable intersection of speed/latency and available margin through scalability, across multiple regions, Bowell said.
“In other words, rather than pursue the ultimate low latency platform, at any cost, firms should take the sensible approach that reaches an acceptable level of latency but still leaves room for profitable service and trading performance, and not get blinded purely by speed,” he said. “And rather than pouring millions into nanoseconds of improvement, focus on network service and design issues that deliver milliseconds of improvement at a fraction of the cost.”
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