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September 30, 2004

Ticks In a Tidal Wave of Data

By Peter Chapman

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Program traders, deluged by data, are scrambling for a solution. The surge in quotes of the past few years is being compared to a tsunami - a tidal wave - by the Financial Information Forum, the New York-based market data think tank. Peak message traffic in the equities and options markets hit 31,000 messages per second earlier this year, up from 900 in mid-1997, according to the FIF. And it says that number could double next year.

Cheaper computing power and the willingness to use it has both brokers and exchanges spewing out more data than ever, says the FIF. Decimalization, which overnight created 100 price points for every dollar of a stock's price, is also responsible for the surge, others note.

Traders now use computers for both order placement and up-to-the-minute analysis of market conditions. Smart routing determines where to trade. Sophisticated analytics determine what, when and how to trade.

But, with the data deluge, getting a firm grip on the what, when and how is becoming more difficult. Unsurprisingly, traders have no tolerance for delays in receiving data. Yet that's what many experience as their databases are unable to handle the onslaught.

Now, however, several vendors have developed a solution: the tick engines. Also known as tick databases, these systems can store large amounts of data in real time and allow traders to test their theories without pause. The technology nestles between a trader's front-end trading system and his market data infrastructure. Many prop desks, program desks and hedge funds are finding they can't live without it.

That has vendors smiling. Several offer the technology including KX Systems, Vhayu Technologies, Neovest, TimesTen, Townsend Analytics, Leading Market Technologies and Radial Systems.

For Vhayu, which began life in 1998 as an Internet service for daytraders, the wall of data couldn't have come crashing down any sooner. The collapse of the semi-pro market nearly brought the company down. But a decision to focus on the pros and a $6.5 million cash infusion last year appear to have revitalized the vendor.

Los Gatos, Calif.-based Vhayu (pronounced "Vie-You") says it has six customers, including the Japanese giant Nomura Securities. Another seven or eight are said to be in pilot. Employees number 24, up from six at the time of the financing. Vhayu expects to end the year with 35 to 40.

Gary Manton is head of sales and marketing at Vhayu. The exec sat down with Traders Magazine technology editor Peter Chapman to discuss the problems facing traders as well as the mechanics of the Vhayu technology.

Traders: We're seeing a lot of data these days.

Manton: No question. Data volumes are double what they were one year ago. Raw data for Level One equities is about four gigabytes a day. That's up from 2.5 gig one year ago. Take that up to Level Two and you're are at 20 gig. It's massive volumes.

Traders: What does this mean for traders?

Manton: Reducing latency is the biggest issue. Storing large amounts of real-time and historic data is another. And then there is the issue of handling reference data, corporate actions, corrections, and cancellations. These are all issues traders haven't had to address in the past.

Traders: Decimalization is a major driver?