Low Latency Landscape
This was the 5 minute speech I gave at the Low Latency Trading Solutions seminar with RTS Realtime Systems and Equinix before the FIA event in Singapore began this past December 2, 2009.
Good morning everyone. My name is Steve Edge Director of AsiaEtrading.com. I would like to thank you for attending our Low Latency trading solutions seminar. Our hosts today are RTS Realtime Systems a leading global trading systems provider. And Equinix a provider of global data center services.
But before we get to them I’d like to take a minute to talk about the low latency trading landscape. What are the inputs to a robust low latency trading environment?
Regulatory framework, Post trade processing, Co location and proximity hosting, exchange technology, Price feed, Hardware, Software
Asia’s regulators, SEBI in India, the Monetary Authority of Singapore, China’s CSRC, the Hong Kong SFC, ASIC in Australia each enforce their own set of rules in their respective countries shaping the low latency landscape. We all saw what happened to Short Selling this past year. Asia’s regulators are also watching closely the developments in the West within the ATS and Dark Pool space where fragmentation is increasing and transparency decreasing. There has been much talk of OTC counter-party risk and moving these products to the exchange. While we know Asia’s regulators to be slow to act they are moving forward. For example, DMA in India, The Chi East the dark pool joint venture between the SGX and Chi-X. Australia too appears to be set to allow local competition in its equity markets. I think the regulatory challenge in Asia will to be come to some common ground on the business of trading and develop a seamless cross border trading environment.
Post Trade processing is a also a critical element of the low latency landscape. As regulated members of any exchange practitioners are required to provide accurate confirmation and statements to clients in a timely fashion. Clients are even demanding live time confirmations from their broker. High frequency trading has increased volumes and tightened spreads but it has also reduced order sizes too. An effective, robust post trade environment is a must.
Co location and connectivity are also drivers of low latency trading. The further away from the exchange your trading system is the higher the latency generally attributed to network repeaters and hops. Consider that it’s more than 12,000 km from Mumbai to Wellington high performance networks are needed not on only in electronic trading but in many critical applications we take for granted. Or why not skip the network and host your hardware in a data center near the market you wish to trade. You can cut out several milliseconds of latency using a co location or hosting solution. John Knuff from Equininx will shed more light on that in a moment.
Exchange technology certainly affects low latency trading. Has anyone traded in Japan? I think we all know that Asia’s exchanges are behind the curve when delivering sub-microsecond latencies and high order per second throughput but they are working to fill the gap. The Tokyo Stock Exchange Arrowhead project due next month expects orders roundtrips of around 30 milliseconds down from 3 to 4 seconds. While this is still slow by US and European standards Asia’s exchanges are realizing that high frequency trading does increase volumes, does tighten spreads and will make their markets more efficient. Now will they only lower their fees?
Consider low latency price feeds. They are the single largest bandwidth consumer when it comes to trading. You need tick data, last price, bid, ask, depth, time stamps, volume, etc to feed low latency high frequency trading. But not only that market data as well as being fast must also be accurate and reliable. We are seeing an increasing convergence of Market Data for not only orders and trading but for trade analytics, Compliance and Risk. Realtime position keeping and streaming market data are the basic tools for today’s risk managers. In a drive to stream line and save costs firms are looking to a single common low-latency platform across many lines of business.
Hardware considerations. The explosion of quantitative trading and its ever increasing sophistication driven by a Quant culture day I say generation Q has placed more and more demands on computing technology . Strategies include pairs trading, stat arb, correlation trading, spread trading, market making, signal processing, Parkinsons vol estimator, Geometric Brownian motion, Heston correlation it goes on and on and will continue to evolve.
And finally trading software. Quantitative traders need sophisticated tools to translate their trading ideas into profit. Not only that but the trading software has to make it easy to implement these ideas. Buy side wants to spend time fine tuning their models and making money. They don’t have the time to figure out how to use an archaic trading system or spending money to hire a full time programmer. The software must also have a sound architecture to enable complex trading instructions to be executed ultra fast.
Speaking of which before the rest of you fall asleep let’s move on to the interesting part of the seminar .It brings me great pleasure to introduce Stephane Lannoy from RTS Realtime Systems and here how they are delivering low latency trading solutions to their customers.