Exchanges are racing ahead to get more information out faster to meet market demands

As the demand for speedy market data continues to rise, exchanges must have the capacity to transport and process millions of messages per minute. This need for speed requires a low latency, high throughput market data infrastructure that will enable exchanges to get more information out faster and lead to increased trading volumes.

The TABB Group estimates the volume of market data will skyrocket by more than 140 percent from just under four billion messages per day in 2006 to almost 130 billion messages per day in 2010. The sheer volume of messages means that the human factor has been, and will continue to be, replaced by algorithmic trading and automatic execution.

Jeromee Johnson, TABB Group senior analyst and consultant, says there are two things exchanges and their clients should be prepared to do in terms of speed, throughput and latency. “First and foremost, they need to be
prepared to spend on technology,” he says. “They should be fully prepared and fully expecting that the technical arms race is not going to slow down. It will continue to require investment. “From a market data distribution point of view,” Johnson continues, “you can also look at new initiatives like FAST, which are as much about bandwidth and throughput as they actually are about speed. But something that is implemented internal to the exchange also has multiple benefits to the exchange and their end clients.”

FIX – short for “Financial Information eXchange” protocol – is an industry- driven messaging standard developed for real-time electronic security trading. It functions as a global trading language for exchanges around the world. “I’m a firm believer in the FIX protocol, and it is the absolute standard for electronic trade communications on a global basis,” says Johnson.

(Exchanges) need to be fully prepared to spend on technology. Jeromee Johnson, senior analyst and consultant at TABB Group.

However, Johnson says, the FIX protocol alone is not enough to give exchanges the performance and throughput characteristics that they need. “An extension of the FIX protocol, like FAST, offers those benefits,” he says. FAST is a high compression feed that aims to standardize the transport of high volume market data feeds at the same time that it provides high throughput and low latency. It’s not just about the need for speed, however. Peter Belling, Head of Information Services at OMX, says there is also a growing need for consistent, processable data. In other words, data must have added value. “Exchange members and investors can gain a much higher productivity if we can pre-process the data or make it processable,” he says.

MarketView 2007:2