Opening Cross: Low Latency, High Capacity, Non-Display: The Effects on FX and Beyond

Max Bowie, editor, Inside Market Data

The constant race towards low-latency data and high-frequency trading isn’t just a headache for trading firms trying to outpace their rivals in search of the best fill, and who have to sift through increasing volumes of data that threaten to overwhelm them, but also for exchanges that have to keep up with the sheer amount of traffic being thrown at them from all of those firms combined. And some are clearly becoming concerned about the impact of the volume and speed of data on their marketplaces.

For example, Direct Edge and Nasdaq OMX both unveiled plans to combat excessive messaging last week, with Direct Edge warning that it will reduce the rebate paid to members with a message-to-trade ratio of more than 100:1, and Nasdaq threatening fines on firms that exceed the same threshold, while the BATS Exchange is also said to be considering initiatives to improve price quality in the face of increased volumes, in addition to its existing NBBO Setter and Competitive Liquidity Provider programs.

Greg Ginzburg, head of connectivity solutions at FIX technology and latency monitoring software vendor Greenline Financial Technologies, says exchange initiatives to limit order-to-fill ratios or charge for excessive messaging will directly impact the profitability of trading strategies, and make it even more important for firms to test and optimize their trading strategies before unleashing them on the market.

But while the equities markets are dealing with the effects of long-term efforts to reduce latency and increase trading frequency, other markets—both geographically and in terms of new asset classes—are just seeing some of the first steps that will inevitably lead to similar issues. For example, in last week’s issue, we outlined how UK-based hardware-accelerated feed handler vendor Celoxica is expanding its low-latency feed handlers and execution components from equities and futures markets into foreign exchange and fixed income. And last week, Redline Trading Solutions, a provider of hardware-based feed handlers and ticker plants, announced it has added connectivity to 20 currency trading venues—including major FX ECNs and currency dealers—to its InRush ticker plant and execution gateway, enabling co-located algorithmic trading applications to capture market data and trade FX with single-digit microsecond latency, officials say.

As use of algorithmic trading increases in these asset classes, venues will need to implement new policies to tackle not just message volumes, but also issues like non-display data usage, for which Nasdaq came under fire this week—not so much because firms objected to the fee increase, but rather that some firms say the 31-day notice period given to prepare for the change is too short, and doesn’t conform to Nasdaq’s own best practice guidelines, even if it does meet the letter of its contracts.

At the other end of the scale, industry association FISD’s Consumer Constituency Group last week awarded the London Stock Exchange the inaugural “Bobbie” (Best of the Best Award for Excellence in Financial Information Commercial Policies) award, citing the introduction of a per-user model that allows netting across vendors, a simplified unit of count that supports a new non-display policy and fee. FISD officials say the award is intended as an incentive “for all suppliers to implement their policies with equal clarity and reasonableness.”

And speaking of awards, the voting is now underway for the 2012 Inside Market Data and Inside Reference Data awards at But like Nasdaq and Direct Edge, we’ll penalize anyone whose voting activity exceeds a strict 1:1 ratio. So vendors, please don’t try to vote for yourselves. And consumers, cast your votes wisely. And if you think someone has performed particularly well—be it an internal team, an industry executive, or a vendor that fulfilled a project for you, you can submit them for their own award in our call-for-entry categories.

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