GreySpark Partners, the capital markets consultancy, has revealed that low latency requirements are no longer just the confine of the equity trading markets and that the need for speed is equal, if not greater, in other asset classes.
A new research paper entitled “Low Latency: Faster than Light”, shows that, in particular, FX, bonds and listed futures and options markets are benefitting from and demanding ultra-low latency trading platforms. The report indicates that since the advent of electronic exchanges in the mid-90s, the latency thresholds under which a trading platform must perform to stay competitive have been halving every three years, to reach levels of a few tens of milliseconds.
The report is an industry-wide analysis of low latency technology providers and strategies to reduce latency. Underpinned by interviews with providers of latency measurement tools and compounded by the professional experience of GreySpark consultants, this analysis evaluates 20 strategies designed to reduce latency. In approaching over 30 vendors GreySpark has analysed latency at the application, server and network levels.
According to the research, compiled by GreySpark’s dedicated research arm Capital Markets Intelligence, and published in cooperation with Best Execution magazine, latency, or “the total elapsed time between the event, or signal, triggering a trading decision and the actual completion of that trading action”, is generated at three levels in today’s electronic platforms. Firstly, in the applications that interpret financial information and make trading decisions (~65%); secondly in the middleware that distributes the various messages and signals (~25%); and thirdly in the network fabric that transports data from a market to the trading firm and then back to the market (the last ~10%).
“Speed has always been an intrinsic part of trading,” commented Frederic Ponzo, Managing Partner, GreySpark Partners. “Evolving from signal lanterns allowing a message to be transmitted from New York to the Philadelphia stock exchange in less than 30 minutes, to fibre optic cables with the ability to carry information around the globe in milliseconds in today’s financial markets, it remains crucial in retaining a competitive edge. We hope this report will shed some light on what the key actions are when reducing latency, and which strategies work”.