March 2012 - sponsored by: Sybase, an SAP company; Spryware; West Highland Support Services
Is Latency Losing Its Luster?
After a decade of the smartest trading firms finding ever-smarter ways to trade faster and leave their competitors in their dust, low latency's status as a standalone game-changer is beginning to fade, and any incremental gains are becoming increasingly hard-fought over as firms look for new ways to exploit their investments so far and seek out future sources of advantages.
According to participants in this report's roundtable discussion, latency is still important, but is providing less of an advantage, and is becoming more expensive to achieve. But those already committed to major investments in low-latency architectures must remain so or "put the car in the garage and stop racing," says Tim Dudgeon, managing director at West Highland Support Services.
Hence, those firms must continue to address the challenges of low latency, such as microbursts, jitter and expanding their use of monitoring solutions to identify and eliminate internal latencies-as well as expanding these tools to provide network statistics beyond just latency measurements-while others "must weigh the return on investment for the next nanosecond reduction in latency and decide if the risk-reward justifies the capital spend," says Daniel May, director at SpryWare.
Others without the chips to stay in the game may want to "rent" low-latency capabilities from those able to make the required investment, who can offset those costs by allowing others to use their infrastructure, says Neil McGovern, senior director of strategy for financial services at Sybase. And with speed approaching its physical limits, firms are focusing on being smarter, not just faster, McGovern adds.
However, latency isn't going away: In the near term, it will expand to emerging markets where inefficiencies still exist, as well as to other asset classes such as fixed income and foreign exchange, making speed an important issue even for once-illiquid assets, says Scott Ignall, chief technology officer of Lightspeed Financial.
In summary, latency is transitioning from being an advantage in and of itself to a basic requirement that in future will be the foundation on which those smartest trading firms will build the next generation of competitive differentiators.
Bryan Harkins joins to discuss how the CBOE-Bats integration is going and plans for the exchange operator going forward. Anthony and James talk about the SEC hack and Esma's potential new powers.Subscribe to Weekly Wrap emails