The Next Bottleneck in Trading Speed: Software
April 19, 2010
Arista Networks Monday introduced a high-powered low-power computer that can process transactions in five millionths of a second. It already sells one to high-frequency traders that can process an order in 600 billionths of a second.
Blade Networks and Voltaire, also Monday, announced a partnership that will combine their switching networks for data center customers. The maximum time that it will take data to move through the combination is estimated at 2.4 millionths of a second.
Which may have led Blade chief executive Vikram Mehta to declare at the opening session of the 2010 High Performance Computing Linux Financial Markets Show and Conference in New York that the next bottleneck in high-speed trading is not hardware, but software.
In effect, he said, success in increasingly fast-moving automated markets will be dependent on how efficiently traders’ programmers write the algorithms that drive their buying and selling of securities in the increasingly smaller slices of time that technology will permit.
“If you look at the rest of the infrastructure, your servers, your storage subsystems, your fabrics, people in the trading world have access to the same technology that their competitors do,’’ Mehta said. “So I really think at the end of the day, in the pursuit of zero latency, the ultimate decider is going to be how smart those algos are, as opposed to specifically what architecture is being deployed.’’
Mehta contended that “those architectures are going to be very universal, whether you’re a high-frequency trader or an exchange offering those services” to clients. And Andy Bechtolsheim, founder of Arista Networks, on the same panel, said technology will keep driving the speed of execution toward the speed of light. Right now, for instance, it’s a big deal to be sending data across Ethernet networks at speeds of 10 billion bits of data a second.
But, Bechtolsheim noted, that will be leapfrogged twice over the next 19 months, first to 40 billion bits and then 100 billion bits. This will take place by the end of 2011, he said he expects.
Also cutting time will be moves to put more functions associated with trading venues into single blades or computing servers, putting a stock exchange in a box.
The technology unit of NYSE Euronext, for instance, is creating a single server that will provide “trading in a box.”
The device will include chips that will act as engines to pull in market data and send them to trading engines, trading engines for a trading firm, smart order routing engines to pick the right venue to send orders to and, finally, market access engines, to take those orders to those markets, instantly.
The single-box trading server was described by Feargal O’Sullivan, head of enterprise software in the Americas for NYSE Technologies.
But software is not the only bottleneck. Every step of the trading cycle has to be analyzed and the time spent in each step cut, said Mats Andersson, the chief technology officer of Nasdaq OMX Group.