What’s Next in Exchange Technology
Exchanges are fast-tracking technology upgrades to boost speed and reliability.
Speed and reliability are the watchwords for exchanges as they assess their needs and those of their customers.
The Chicago Board Options Exchange’s (CBOE) primary technology initiative for this year is the roll-out of CBOE Command, a state-of-the-art trade engine technology.
CBOE Command will provide investors with new, customized ways to trade an array of options and volatility products, including SPX and VIX.
“We designed the platform with three critical disciplines: low latency, optimum resiliency and increased user-functionality,” said Gerald O’Connell, CBOE’s chief information officer.
“Ultimately, CBOE Command offers the fastest technology hardware available and will provide customers with more features and even faster access to CBOE products and data than ever before,” he said.
The introduction of CBOE Command goes hand in hand with the CBOE’s decision to move its servers to the Equinix NY4 IBX facility in Secaucus, New Jersey. By the year’s end, all five of the CBOE exchanges—CBOE, C2, CFE, CBSX and OneChicago—will be housed in the facility.
“CBOE is moving its servers from Chicago to New Jersey,” said O’Connell. “We believe the move will level the latency playing field and reduce order turnaround time for our east coast customers.”
A Means, Not an End
While technology has become critical to almost every aspect of an exchange’s business and those of its clients, it’s important to realize that those technologies are to serve business functions.
“The most important function of these technologies is to provide a venue for organizations to raise capital, transact that capital on a day-to-day business with investors and provide decision support content to enable those business transactions,” said Andre Craig, vice-president at TMX Datalinx, the information services division of Canadian exchange operator TMX Group.
TMX Group is innovating in a number of areas. “With respect to market data we are developing new protocols to deliver data to clients more efficiently and more reliably, such as TMX’s XMT [eXtreme Message Transfer] protocol for equity market places,” said Craig.
Technology providers offer domain expertise to exchanges that don’t have the resources or core competencies in the specific area the technology provider may have.
“Examples of this include technology providers that specialize in adding value to exchange data content or add value in terms of delivering/packaging/hosting exchange core content,” said Craig. “This can help exchanges extend the product life cycle of existing products by reaching new markets or help exchanges create new products and enter entirely new markets.”
The implementation of radio frequency-based systems for transmitting low-latency data is at an early stage and, while the results look promising, numerous hurdles must be overcome, including bandwidth.
Microwave Heats Up
Microwave holds considerable promise as an emerging low-latency technology, but its complexity is a level beyond fiber.
Fiber optic cables have to avoid objects, such as buildings, and follow the terrain—which reduces speed—while microwave transmissions can be beamed from mountaintop to mountaintop, thus offering a shorter distance to the destination.
‘An area of technology investment that’s hot right now is microwave,” said a senior executive at a major U.S. exchange. “That’s a big access technology and we’ve done significant work there from our London liquidity center. At some point, it will be introduced in the U.S. as well.”
The technology for microwave transport is vastly different than fiber. Even within the microwave transport domain, different technologies and radio frequencies are necessary for connecting trading venues within the trading markets of New York and New Jersey, compared with connecting those markets to Chicago, Toronto or other distant markets.
“Microwave is less consistent and available than fiber,” said Mark Casey, president and chief executive of CFN Services, a provider of managed automated trading services. “Fiber has more robustness than microwave.”
CFN’s Alpha platform employs technology from xCelor to support simultaneous active data paths and manage the complex failover from microwave to fiber, ensuring consistent data delivery at the absolute best latency.
“Trading strategies have no margin for error when it comes to missing market data,” said Casey. “xCelor has developed the capability to multitask radio frequency and fiber, so that we can send data down both paths simultaneously.”
xCelor specializes in high speed, low-latency rebroadcasting and risk management solutions for high-frequency trading.
“Microwave is now a viable medium for native market feeds, with near-zero additional latency,” said Robert Walker, chief technology officer of xCelor. “With CFN, we are articulating a solution using our hardware engineering and our market feed handling expertise to allow market data over microwave.”
xCelor’s technology compresses native data feeds with a hardware feed filter, then uses radio frequency technology to massively reduce packet loss.
“A market data feed might contain 7,000 symbols, of which only a handful are relevant to your trading strategy,” said Walker. “Our technology inspects market data and strips out non-relevant information to leave a much smaller feed in terms of bandwidth, which allows it to fit in a radio frequency channel.”
xCelor’s Market Feed Handler (MFH), which is optimized for high-frequency trading as well as other high-performance market data services, is currently written for four major stock exchanges: Nasdaq, Arca, Bats and Direct Edge.
“All the work is done in hardware,” said Walker. “The feed is parsed, dropped packets are re-requested and the order book is constructed on the card.”
London Stock Exchange Group is “always very interested in talking with third parties who develop and innovate on new products such as processors, network switches, FPGA [field programmable gate array] systems or the way these are deployed to improve our offering,” said Nigel Harold, head of business development, technology, at the London Stock Exchange.
“New technology that improves reliability, accessibility, capacity, latency and functionality will always be of interest and it is not always possible to develop every aspect of technology in-house,” he said.
Speed and reliability are not mutually exclusive, although in a very fast environment it will be difficult to keep a very strong focus on reliability.
“Trying to keep both in parallel is probably the biggest challenge,” said Philippe Carré, global head of connectivity at SunGard’s capital markets business, a trading technology firm. “We will continue seeing initiatives for performance and for reliability and those will each chase each other. The winner will be the one who can manage it the best.”