06.26.2012
By Terry Flanagan

The Speed Arms Race Moves Up A Gear

Low latency access to the markets continues to be a key demand for market participants, and broker-dealers and exchanges have been there to provide this access and technology.

“Speed continues to be important, it’s become the norm,” said David Herron, chief executive of the Chicago Stock Exchange (CHX).

Whether through exchanges, broker-dealers or technology providers, traders that value low latency access to the markets have a plethora of choices.

“We are always working to engineer solutions for low latency access to the markets,” said Kevin Beadles, managing director of the execution solutions group at Wedbush Securities.

Private financial services and investment firm Wedbush Securities earlier this year introduced a host of new initiatives aimed at giving institutional customers the same low latency access to the markets that quantitative and high-frequency traders have been using in a move to help even out the playing field.

Herron’s CHX is also looking offer its customer base lower latency access, and is considering opening 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.

“The struggle to be faster than the competition has triggered a continuous arms race for technology,” said Hazem Dawani, chief executive of OptionsCity, a provider of electronic trading solutions. “We are continually tuning our system to make it more scalable, so that traders will be able to handle escalating volumes and speeds of data.”

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. A U.S. options exchange, the International Securities Exchange, continually upgrades its trading engine, Optimise, in an effort to minimize latency, while the Singapore Exchange touts the speed of its order matching engine, Reach, as the fastest in the world.

Early next year, Canadian exchange operator TMX Group will launch its next generation trading technology, TMX Quantum XA, which will cut the speed of an order execution to below 100 microseconds, which is a 20-fold improvement in median latency. The new trading system will be able to handle 200,000 orders per second.

NYSE Technologies, the technology arm of transatlantic exchange operator NYSE Euronext, has in recent years launched a host of data centers globally, including in Tokyo, Mahwah in New Jersey, Chicago, Toronto and in Basildon, just outside London. The data centers allow investors, particularly high-frequency trading firms, access to low latency connections by placing them as close as possible to various NYSE Euronext matching engines. NYSE plans to open an additional center in Brazil in the coming months.

U.S. exchange operator CME Group earlier this year launched its co-location services, which include hosting, connectivity and support services. It is one of many exchanges worldwide turning to co-location to increase the speed and lower the latency of its trading platforms, which most directly benefits high-frequency traders.

Related articles

  1. Bats-Direct Edge Complete Merger

    Firm positions itself as an execution partner for the buy-side trading desk.

  2. Contributed Content

    TCA and Broker Neutrality

    TradingScreen notes buy-side quandary of whether to share data with a potential trading rival.

  3. For the moment, the case will move forward.

  4. Canadian Bonds Move Toward E-Trading

    'Choice is the future of U.S. Treasury trading.'

  5. Daily Email Feature

    In Market Data, Size Matters

    Does a de facto exchange subsidization for Wall Street giants disadvantage smaller brokers?