Exchanges Without Borders: Inside the Financial Ecosystem
IEX, a broker-neutral ATS that’s designed to quash the advantages of high-speed market participants, is first and foremost a technology business. CenturyLink hosts IEX’s True Price matching engine, designed to protect investor orders from electronic front-running and other speed-driven predatory trading strategies.
“The TruePrice matching engine is hosted at the CenturyLink Weehawken facility,” Ronan Ryan, chief strategy officer at IEX, told Markets Media. “We take in market data from the 11 exchanges. From a Reg NMS standpoint, you have an obligation not to trade through a better price that’s available from one of those 11 exchanges.”
IEX does not allow any subscribers to cross-connect to it at the CenturyLink data center. Instead, its subscribers, who are all registered broker dealers, have to connect to it from another data center in Secaucus. “We’ve kept them at a distance from our TruePrice matching engine. The front door to IEX is in a separate building at CenturyLink and we’ve separated them by 350 microseconds,” Ryan said. “That means we know that we can take in market data from the 11 venues, normalize it, determine the NBBO, so subscribers cannot trade on our venue with advance knowledge of the market data.”
Even if a subscriber has an ultra low-latency market data feed, the 350 microseconds serves as a speed bump. “Because we’re 350 microseconds away, within that time frame we will have known what the real NBBO is,” said Ryan. “As a trading venue, our role as a referee is to make sure we’re pricing our books as fairly as possible.”
When IEX approached CenturyLink to discuss how to bring a new trading venue to market, it was clear that, like lots of similar startups, it can be quite difficult to map out demand for services and the associated infrastructure needed to power those services over the short and medium term.
“When a company such as IEX launches, they’re often unsure what the uptake of their services will be like; they may in fact face explosive growth,” Roji Oommen, managing director of financial services at CenturyLink, told Markets Media. “It’s extremely difficult when starting a new business to anticipate your IT needs, particularly something as IT-intensive as electronic trading.”
CenturyLink provides IEX and its trading participants with access to more than 200 exchange and liquidity venue feeds, along with network and latency management tools. Most IEX member firms are connected to CenturyLink’s Financial ATS extranet.
“We operate as an ATS with the goal of becoming an exchange,” Ryan said. “As an exchange, we needed a fairly decent size footprint and a lot of servers. We signed a contract in April 2013 and launched as an ATS in October 2013, and we subscribed to a managed services solution for this. CenturyLink purchased our server footprint and leased it back to us. Growing as fast as we’ve grown, we have several hundred servers, and to have a partner do that for us is phenomenal.”
IEX selected a range of services from CenturyLink Technology Solutions to provide the platforms for its trading system, including co-location, managed hosting services, and extranet and internet network services.
“We jointly formulated a solution that allows IEX to build and expand their trading platform over time utilizing CenturyLink Technology Solution’s dynamic infrastructure as a service,” Oommen said. “It provides IEX with a tremendous amount of cost flexibility.”
Another key driver for IEX was that CenturyLink operates secure facilities, and the nature of its business requires a tremendous degree of security and uptime. “The data center where we host IEX is one of the most important financial ecosystems in the world,” Oommen said. “We’ve got over 200 financial customers including trading counterparties, application and service providers and other execution venues.”
Featured image via Dollar Photo Club
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Grossman was formerly CEO of Barclays Global Investors.