Taking Variability Out of Velocity

Terry Flanagan

Variability is a well-known factor in market behavior, but less well-understood is its role in order entry and market data.

With the latest revision of its electronic trading platform, Globex, CME Group has set out to make both order entry and market data more deterministic, that is, more predictable.

On August 26, CME Group began the first phase of the CME Globex performance updates, which are now complete.

“You read a lot about speed these days, and CME Globex is fast—the first phase of the Globex performance release had a median inbound latency of 52 microseconds from the router to the match engine,” said Ari Studnitzer, managing director, architecture at CME Group.

“But it takes more than one element to be successful. The latest release was rooted in feedback from customers and focused on the driving factors of electronic trading today, which is not speed, but efficiency, effectiveness and market integrity.”

CME Group achieved this by focusing on increased capacity, consistency and predictability of the platform.

“We have long been focused on predictability and constancy for the optimal trading experience,” said Studnitzer. “We hear a lot about low latency, but for us it’s not about low latency but low variability.”

CME Group’s goal going into the next Globex release was to introduce a measure of variability.

“Each exchange measures it in a different way,” said Studnitzer. “We compare the delta in terms of median latency relative to the 95% percentile.”

During the process of rolling out changes, CME Group focused on consistent inbound order entry, predictable outbound market data dissemination and deterministic processing of outbound order entry messages relative to market data.

The results exceeded targets.

Inbound order entry latency had a variability of 39 microseconds (median latency relative to the 95% latency of the time between an order leaving CME Globex router through the iLink Gateway, to its of the CME Globex match engine).

Outbound market data dissemination latency variability was 58 microseconds (median latency relative to the 95% latency of the exit from the match engine to the exit of the MDP Gateway).

“Both inbound order entry latency as well as outbound market data latency were reduced by 98% at the 99th percentile post-release,” said Studnitzer.

Also, 99% of outbound market data dissemination latency outside of the engine was within 10 microseconds of 99% of outbound order entry latency outside of the engine.

“We are committed to providing a fair, reliable, consistent and predictable trading experience for all customers and trading interfaces,” said Studnitzer. “In the coming weeks and months, we will continue to execute against our defined roadmap to increase the predictability of order entry, market data and order entry relative to market data.”

The latest set of performance enhancements is part of a continued emphasis on strong risk management practices and trading controls. For example, CME Group’s Risk Management Interface, which was launched in the first quarter of 2012, allows futures commission merchants to block and cancel orders.

“We are continuing to look at driving down variability in future releases,” said Ian Wall, managing director of architecture at CME Group. “To achieve a 98% reduction in the 99th percentile of latency speaks volumes to our efforts.”

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