Corvil Wins Morgan Stanley Latency Monitoring Deal; Focus Moves to Inter-Party Monitoring

Dublin-based Corvil has emerged as the winner of a hotly-contested battle to provide latency monitoring technology for Morgan Stanley's market data distribution and electronic trading infrastructure. In doing so, it beat out several competitors after undergoing several months of testing in lab conditions set up by the investment bank. Morgan Stanley plans not only to use the technology to monitor latency of its in-house systems, but also for inter-party monitoring of latency with trading execution venues that is interacts with.

The latency monitoring "bake off" at Morgan Stanley has been the subject of industry speculation for some time as the major monitoring specialists installed evaluation equipment, which was subject to a series of tests over more than a year. A number of vendors are known to have been engaged at one time or another, including Correlix, Endace, Seanet Technologies and TS-Associates.

It's thought that the final evaluation came down to TS-Associates and Corvil. According to a Corvil statement on the win, the investment bank is looking to monitor not only its internal data distribution architecture in London and New York City, which still remains largely home grown, but also to monitor and model latency to trading venues. Corvil's CorvilClear offering, launched in April, will be adopted for this inter-party aspect.

“Precise monitoring of latency both within our trading plant and to the exchanges is critical to optimal performance of our trading strategies. With CorvilClear, we intend to collaborate closely with all of our exchange and MTF partners to provide real-time latency transparency to our trading businesses and clients. Together with Corvil’s powerful low-latency infrastructure analytics, we are confident that our new trading plant can meet the stringent performance levels demanded by our electronic trading businesses,” said Kevin Twitchen, executive director at Morgan Stanley, in the statement.

CorvilClear allows latency to be monitored between a trading firm and an execution venue, and this inter-party latency approach is emerging as an important facet of latency monitoring initiatives since it has become understood that latency can occur at many places in the trading chain. For execution venues especially, publishing latency data helps to build end-user confidence in that venue. And for market participants, it's a good way to demonstrate efficient execution.

At a practical level, knowing round-trip latency enables service level agreements (SLAs) to be created and monitored, and latency data can be fed into algorithmic trading and smart order routing engines to dynamically manage their trading activities.

From a Corvil perspective, measuring round-trip latency requires that both endpoints - the market participant and the execution venue - have Corvil CorvilNet latency monitoring appliance installed. If that's the case, switching on the CorvilClear service is straightforward, since it is a peer-to-peer architecture.

The European Turquoise MTF (which is currently in talks to be acquired by the London Stock Exchange) is the only venue that is publicly using CorvilClear, though Corvil says that several execution venues and connectivity services are testing the service. Corvil's latency monitoring technology has also been installed by the LSE itself, by Deutsche Boerse and at the CME Group.

It has also been installed by Thomson Reuters, BT and Fixnetix, all of whom provide market data and/or trading connectivity and colocation/proximity services with many execution venues. Credit Suisse is also a customer. A Corvil spokesperson says that Morgan Stanley can contact any execution venue that has CorvilNet installed and request they enable CorvilClear, adding that they believe the investment bank will indeed do this.

Another option is for the Morgan Stanley to install Corvil equipment at execution venue's proximity centres, though it's preferable that the venue take the lead, since it would probably allow them to locate the CorvilNet gear closer to the matching engine and ticker plant. The bigger picture, as Corvil sees it, is a multi-stream approach to wide CorvilClear adoption, building what the company characterises as the CorvilClear community:

1. Market participants will adopt CorvilClear looking to establish latency peering relationships with exchanges, on a 1:1 basis.
2. Execution venues will adopt CorvilClear to demonstrate SLAs and latency transparency to its members.
3. Network and co-lo service providers and market data providers will adopt CorvilClear to show service level compliance and latency transparency to their customers.

While inter-party latency transparency is fairly new, Corvil's CorvilClear is not the only service available. TS-Associates offers TradeSync, which has been implemented by Chi-X Europe, while Correlix is pushing RaceTeam, in use at Options IT and the Schneider Group. Some industry observers suggest that an open standards approach is required to allow inter-party latency monitoring to take off, in the same way that the FIX protocol acted as a catalyst for electronic trading itself.

It is believed that there are initial discussions between certain vendors and market participants discussing such a standard, no doubt with a view to heading off a potential proprietary Corvil dominance of the technology space. Founded in 2000, Corvil is privately-owned with networking giant Cisco Systems as an investor (and reseller), alongside venture firms Apax Partners, ACT Venture Capital and Vesbridge.