Exchanges in a Race to Zero Latency
Traders Magazine Online News, September 25, 2009
Both BATS and NYSE Arca also announced latency reductions this summer. BATS cut its average latency, or the amount of time it takes to execute an order, by 50 microseconds to 395 microseconds. It also announced that it can now convert an order into a quote for transmission on its market data feed in 631 microseconds.
NYSE Arca, a unit of NYSE Euronext, announced that its order acknowledgement time, the time it takes to confirm receipt of an order, had been reduced to under one millisecond for Tape A and Tape B names and under 650 microseconds for Tape C issues.
Perhaps the summer's most symbolic announcement came from NYSE Arca's sister exchange. The New York Stock Exchange said in July it scrapped its 33-year-old SuperDOT platform order delivery and processing system, as well as an internal routing system called Post Support System. In its place, the NYSE installed its Super Display Book system, technology based on NYSE Arca's trading engine.
The move cut the time it takes to execute an order from 105 milliseconds to five milliseconds, according to the exchange. That's down from 350 milliseconds in 2007. NYSE customers now get order and cancellation acknowledgements in two milliseconds, the NYSE added.
Five milliseconds is a far cry from Nasdaq's 250 microseconds, and NYSE executives acknowledge they still have work to do. Still, the rollout this summer of the Super Display Book system was the culmination of an 18-month project that saw the Big Board completely reengineer its underlying hardware and software architecture using technology it acquired with the purchases of Euronext, Wombat Financial Software and Archipelago. The NYSE completely replaced its order entry, order database and routing systems, market data systems and pieces of its post-trade system.
The move to revamp its dated infrastructure potentially opens doors that were previously shut to the NYSE. At least one bulge shop refused to send any of its algorithmic flow to the NYSE because it was too slow, an NYSE exec told Traders Magazine.
On the other side of the Hudson River in Jersey City, N.J., technicians at DirectEdge ECN have also been ripping out old and installing new technology.
DirectEdge has seen its share of trading volume shoot from about 5 percent a year ago to about 12 percent today. To deal with the increase in messages flowing through its systems and prepare for the future, the ECN chose to replace its messaging middleware, TIBCO. It chose faster technology from 29West, a relative newcomer to the business. DirectEdge says installation of 29West's technology has produced a "dramatic reduction in overall system latency" and increased its throughput.
"It allows us to use persistent messaging without the penalty," said Steve Bonanno, DirectEdge's chief technology officer. Persistent messaging is typically slower than non-persistent messaging, but offers guaranteed delivery. No messages are lost as they can be with non-persistent messaging. 29West's technology eliminates that latency "penalty," Bonanno explained.
DirectEdge is now able to guarantee its customers an order response time of 300 to 500 microseconds. That's measured from the time the order enters DirectEdge's gateway to the time the acknowledgment hits the gateway. Previously, response times of DirectEdge's three trading platforms were in the 1.2- to 1.5-millisecond range.
Although DirectEdge needed the changeover to 29West primarily for throughput, it couldn't ignore latency. "Speed is the toll you have to pay to be in this business," Bonanno said. "Being fast is a given. That has to be there."
All things are relative, of course, and speed is no different. Market centers are forever engaged in a ferocious battle with each other to win market share. In their desire to impress traders, they will often put out overly rosy latency numbers, critics charge. "There is a lot of confusion, and, in some cases, obfuscation about the actual latency at the venues," said Donal Byrne, chief executive of Corvil, a Dublin, Ireland-based maker of latency monitoring and management tools. "It is impossible to make apples-to-apples comparisons."
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