Rising Volumes Escalate Latency Arms Race
Software, hardware solutions rush to fill demand
January 7, 2008
Simon Garland chuckled as he examined charts showing the spikes in quote volumes on the New York Stock Exchange that began in August. "It was like Christmas," said the CTO of Kx Systems, a Palo Alto, Calif.-based provider of high-performance, in-memory database technology and streaming event processing. "It was magic."
But not for everyone. Garland says some firms lost ticks because their systems couldn't handle all the data coming from the exchanges. Systems didn't crash, but at the end of a day with 475 million quotes, 470 million might be in the database. "That's okay for a historical database," he notes, "but if you want to trade through the storm, the last thing you want is to lose ticks just when it is getting interesting."
Speed has long been an invaluable asset in capital markets, but the growth of algorithmic trading and new best-execution requirements have created hefty challenges for market data processing and analysis.
Larry Tabb, founder of New York-based Tabb Group, cautions that the low-latency arms race is limited in scope. He says there are maybe 100 firms worldwide that can, or will, pay for the best technology.
As Garland points out, those with the most money can buy the best systems. Not only can the top firms store and use weeks of historical data in real-time, pre-trade processing, they know how much analysis can be done within the processing windows of the firms in the next tier down, giving them an advantage in trading against the competition. A similar tactic exists in aerial combat: By operating inside the enemies' OODA loop--short for observation, orientation, decision, action--a fighting unit maintains the initiative and keeps its opponents off-balance.
Tom Price, senior analyst for capital markets at Needham, Mass.-based TowerGroup, says the need for the latest technology will divide Wall Street firms into the haves and have-nots. "If you don't spend, you will get left behind," says Price. "You will lose out in the hunt for liquidity, you will not get to the pools that are fragmented across the spectrum, and you will constantly be eating leftovers."
He adds: "Not only do you need content--market data infrastructure with speed--but you also need analytics and strategies that allow you to look at light and dark liquidity and generate internal organic liquidity. If you don't have the horsepower, you can't be in electronic trading."
Hardware vs. Software
Vendors are responding with both hardware- and software-based solutions, usually touting their company's as the best possible approach.
IBM Corp. in November introduced version 2.0 of its WebSphere MQ Low Latency Messaging software, which can support the processing of millions of messages per second with microsecond latency, according to Chae An, VP of financial sector industry solutions in the company's software group.
Reuters is using WebSphere to extend the multicasting capabilities of its Reuters Market Data System (RMDS). "The performance and interoperability of WebSphere MQ Low Latency Messaging will give our clients even more messaging choices for RMDS 6.0 at greater speed than ever," said Peter Moss, global head of enterprise solutions at Reuters, in a statement. "For the first time, developers will be able to build new applications using Reuters Foundation API on top of IBM messaging software to access content from RMDS 6 and to distribute it into other parts of their organizations."
