Speed Race Continues03.22.2012
Low-latency access to the markets continues to be a key demand for market participants, and broker-dealers and exchanges are continuing to provide the access and technology.
“Speed remains important, it’s become the norm,” David Herron, chief executive of the Chicago Stock Exchange, told Markets Media.
Wedbush Securities, a private financial services and investment firm, has recently 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.
“We are always working to engineer solutions for low-latency access to the markets,” Kevin Beadles, managing director of the Execution Solutions Group at Wedbush, told Markets Media.
The customers targeted by Wedbush’s new Execution Solutions Group are its institutional accounts, which include the buy side, the traditional buy side and the sell side. At the same time, it is launching a new trading platform, borne out of its acquisition of technology developer Lime Brokerage last year. The new platform will dramatically speed up trades for fund managers and other institutional investors.
The Chicago Stock Exchange is also looking to 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 its 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 electronic trading platform OptionsCity. “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.”
However, some market participants have seen the writing on the wall and have dropped out of the speed race. Boston Options Exchange chief executive Tony McCormick saw the maker-taker model, which benefits the high-frequency firms, as a “non-starter” when he came on board in in late 2009. “It takes a lot of technology to be in that game, it’s like an arms race, it’s expensive,” he said. “All you can do is offer faster speed, but at some point you run out of speed.”
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, meanwhile, touts the speed of its order matching engine, Reach, as the fastest in the world.
Early next year, 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—a 20-fold improvement in median latency. The new trading system will be able to handle 200,000 orders per second.
NYSE Technologies has launched a new data center based in Tokyo, the latest in a network of global liquidity centers, which will offer customers high-speed, low-latency access to the fast-growing market. It joins existing centers in Mahwah in New Jersey, Chicago and in Basildon, Essex, in the U.K. The data centers allow investors, particularly high-frequency trading firms, access to low-latency connections by placing them as close as possible to the various NYSE Euronext exchanges’ matching engines. NYSE plans to open additional centers in Toronto and Brazil in the coming months.
CME Group recently launched its co-location services, which will include hosting, connectivity and support services. It is one of among many exchanges worldwide turning to co-location 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 two-thirds of all trading volume in the U.S., according to industry estimates.
Firm positions itself as an execution partner for the buy-side trading desk.
TradingScreen notes buy-side quandary of whether to share data with a potential trading rival.
For the moment, the case will move forward.
'Choice is the future of U.S. Treasury trading.'
Does a de facto exchange subsidization for Wall Street giants disadvantage smaller brokers?