Conference Report: Low-Latency Benefits, ROI Still Elusive

Securities firms have to learn how to better exploit their low-latency architectures so that all groups in a trading enterprise can see the business value of their costly high-performance infrastructures, said participants in a panel discussion at A-Team Group’s Insight Exchange conference on High Performance Technologies for Trading and Risk, this week in New York.

Despite the widespread deployment of low latency systems, many firms have a difficult time articulating the capabilities of their architectures into business benefits because key IT support groups within an enterprise - market data, trading technology and risk IT to name a few - keep to their technology silos and rarely interact with the business side, panelists added.

Few firms are able to step back and see how low latency affects the whole architecture, said panelist Peter Duffy, CTO at Sumerian, which offers modeling and analytics for trading environment optimisation. Market data groups within a firm may fully understand how vital low latency is to the firm’s survival while other technology and business groups may not be as aware and may not be maximising their use of low-latency offerings, he said.

At one point during the panel discussion, Duffy asked participants, most of whom are financial technologists, to raise their hands if the business side within their firms had expressed to them an understanding of the worth of their low latency architectures. No hands were raised.

High frequency trading firms - in contrast to multi-market investment banks - have developed a more sophisticated appreciation of how low latency architectures affect them, said Jay Houghton, director of Algo Services Engineering at Lime Brokerage.

The sooner firms connect the dots, the better because there are emerging technologies that will help them construct low-latency architectures for competitive advantage beyond equities, said panel moderator Peter Harris, president and editor-at-large for the A-Team Group.

As firms look to extend low latency to options, FX and derivatives, two technologies worth noting on the horizon are the products that combine the Remote Direct Memory Access (RDMA) communications protocol with 10 Gigabit Ethernet networking and Inter-Process Communication (IPC) configurations that speed up transactions within a server via tightly shared memory, Harris said.

Firms will also face a build or buy decision as they look to revamp their IT systems to accommodate low-latency architectures, panelists said. A major stumbling block will be discerning the best way to allocate the low-latency budget given that many trading enterprises lack an end-to-end view of how latency is helping all groups. To get consensus on low-latency architectures, firms have to understand that “latency is a distribution and not a number,” Duffy said.

The siloed groups within a trading enterprise need to see how latency impacts them now and how it will impact them six months from now when volumes most likely will increase, he said. Not many firms have a latency overseer and they need one. With rising volumes and other market factors looming, low-latency architectures do require someone to enforce a discipline that maximises the use of low latency for all aspects of securities trading, said panelist Jason England, associate partner - eTrading/market data at Citihub. “Maybe there should be a Chief Latency Officer?”

Firms face another major adjustment in applying low-latency expertise earned via equities to FX, options, derivatives and other instruments. Most of these implementations will be on a case-by-case basis and transferable intellectual property will help, Duffy said.

Once firms have decided to expand their low latency environments they will have to engage in “internal bakeoffs” to test potentially new architectures against incumbent ones, said panelist Daniel May, director and co-founder of SpryWare, a provider of direct feeds handlers and ticker plant technology. The metrics required for these tests and day-to-day operations must take into consideration outliers and firms should consider working with third party companies that offer benchmarking services, May said.