Max Bowie: Got an ITCH? Let It Spread

The spread of ITCH as a data protocol is part of Nasdaq’s success story. The more exchanges adopt Nasdaq OMX’s Genium Inet and X-stream Inet trading platforms and their associated bells and whistles, the more prevalent ITCH becomes.

In some cases, this is driven by small or emerging-market exchanges without huge internal IT resources, for which Genium and Inet represent a way to roll out a modern and fully functioning platform to attract participants who expect these capabilities, and to adopt standards that make it easier for those participants to connect to an exchange’s data and interact with its markets.

ITCH has also gained widespread adoption among large, high-volume and high-frequency markets, such as the London Stock Exchange’s Millennium­IT platform, and US and European exchange operator Bats Global Markets, in addition to Nasdaq’s marketplaces in the US and Europe, and its recently acquired eSpeed fixed-income platform, which will roll out an ITCH datafeed in the coming months to provide lower latency, better performance, and the ability to carry full depth data, as well as a retransmission and recovery mechanism  not available on the current eSpeed Multicast feed, plus the ability for client firms that already use ITCH for other markets to reduce development and maintenance requirements associated with data protocols.

In addition to these, Canadian exchange operator CNSX Markets is considering adopting the ITCH standard for its Canadian Securities Exchange and Pure Trading ATS markets. The exchange already uses Nasdaq’s X-stream Inet platform, but currently uses the FIX protocol for market data distribution, which CNSX CEO Richard Carleton says offers “greater richness” that will continue to be useful to a sub-set of its clients, but also consumes more bandwidth than ITCH, making ITCH more suitable for the data needs of low-latency and algorithmic traders and market-makers.

But in the long term, how open will Nasdaq be to others using its protocol, or derivatives of it? After all, ITCH is proprietary, originally developed largely by Josh Levine of the Island ECN, and Nasdaq could potentially enforce its intellectual property if it believed a close competitor were gaining share as a result of its own investment. However, this seems unlikely: Infringement lawsuits tend to cause stagnation and leave potential users wary of adopting a particular standard—such as how the industry dropped the FIX-developed FAST protocol like a hot potato after a hitherto-unknown company sued many of the firms, vendors and exchanges using it for patent infringement.

FIX Trading Community is incorporating ITCH-style semantics into the FIX protocol, reflecting its status as the de facto data standard.

Also, FIX Trading Community, FIX’s governing body, is adding ITCH-style semantics into the FIX protocol itself—reflecting its status as the de facto data standard, while incorporating that additional “richness” of FIX fields—which should mean the best features of the standard can be adopted in a non-proprietary way. In fact, FIX approached Nasdaq about managing ITCH as one of its standards, although the parties were unable to reach agreement. However, FIX says it will involve Nasdaq in the consultation process of integrating ITCH-like semantics.

Welcome News
This may be welcome news to CNSX and others. After all, no one likes to switch protocols or perform additional coding work for its own sake, and no one likes supporting multiple protocols when one will do. Following the FAST infringement lawsuit, the industry has lacked an alternative standard, and exchanges have instead largely fragmented around proprietary binary data formats—which is fine for trading on one exchange, but not for connecting to dozens of them with different protocols that don’t talk to one another.

Add to this the pressure of rising data rates—the Options Price Reporting Authority predicts that its consolidated feed will require bandwidth to handle almost 23 million messages per second (mps) by July, rising to more than 29 million by January 2016, with some predicting even higher rises—that FAST was designed to address, and it’s clear why the industry needs to band together around a new data standard. And with the industry backing of FIX behind it—well, sort of—ITCH might yet cement itself as just that standard.