Deutsche Börse Pushes Move to Lower Latency Trading Beyond 2011

Deutsche Börse Systems has expanded on its plans to bring together its Xetra and Eurex platforms to deliver low latency trading from a single data centre in Frankfurt, but says redeployment of the matching engines will not be achieved before the end of 2011.

The company has selected Equinix above 10 other data centre providers in the Frankfurt area to support its move into the mainstream of low-latency and co-location, but the timing of the deployment will leave the exchange lagging trading platform developments at NYSE Euronext and the London Stock Exchange (LSE).

Plans to move Deutsche Börse’s New York-based International Securities Exchange (ISE) to a low latency platform based on technology infrastructure that will be used across the exchange’s markets are more advanced. Following a decision in August 2009 to include IBM’s WebSphere MQ Low Latency Messaging in the infrastructure, with the promise of sub-20 millisecond round trips and throughput of 1 million quotes per second, ISE will go live in New York in November 2010. Dates for deployment in Europe remain to be decided, with internal discussion suggesting this will not happen next year 2011, but perhaps the year after.

The exchange seems unperturbed by its apparent lateness in achieving low latency trading for algo and high frequency traders and perhaps believes its impressive plans will be enough to hold market share. The story started four years ago, when the Xetra equities market and Eurex derivatives exchange were running at two data centres owned and operated by Deutsche Börse Systems in Frankfurt, one centre acting as lead, the other as back up for resilience and disaster recovery.

Recognising that global customers with low latency requirements were setting up infrastructure in Frankfurt, Deutsche Börse Systems added proximity services at Equinix and Colt data centres in Frankfurt. The company put in high speed links to its own data centres and about 120 customers moved into the external data centres to be close to the exchange’s trading engines.

Matthias Kluber, executive vice president and head of networks and infrastructure at Deutsche Börse Systems, explains: “Customers deployed trading engines in the Equinix or Colt data centre and matching would take place in our private data centre. The centres are a few miles away from each other, which induces additional latency of 100 to 200 microseconds. Four years ago those microseconds didn’t matter, but now they make a big difference.”

With about 100 customers running proximity trading engines at the Equinix data centre in Frankfurt, the exchange decided that faster access to its markets could be achieved by moving its trading engines into the data centre and maintaining its own data centres for back office functionality.

“Moving into the Equinix data centre means the co-location distance is just a few metres, which will accelerate customers’ access to the Eurex and Xetra matching engines. Today, latency is 1 to 2 milliseconds, but 100-200 microseconds of that latency is caused by the distance between our data centres and the Equinix data centre. Putting our platforms in the same data centre as our customers’ trading engines will reduce latency,” says Kluber.

The selected data centre for Deutsche Börse’s trading platforms and co-location services in Europe is Equinix’s FR2 International Business Exchange (IBX) in Frankfurt, which is undergoing a €12 million expansion. While Deutsche Börse Systems has a longstanding relationship with Equinix and uses its data centres not only in Frankfurt, but also in Chicago, New York and Paris, the search for the best centre to host trading platforms and co-location customers was intense. “We chose Equinix for its high quality technical service, mission critical infrastructure support, strong connections to the global grid and the future proof nature of the data centre. Equinix also has a good record in being open and fair, and offering high quality services to customers,” says Kluber.

While lagging trading platform renewals at NYSE Euronext, which will start trading at its data centre in Basildon, Essex in September 2010 (see coverage here), and the LSE, which is due to update its platform late this year, Deutsche Börse claims it has no need to catch up as it is following a different strategy to its competitors.

Rather than setting up a privately owned trading environment with invited customers, the exchange will provide a public and open trading environment. “This is a strategic decision taken in a competitive landscape. We considered building our own data centre, but preferred to go forward with a strategic partner,” says Kluber. “Our trading platforms will be in an open and independent data centre where customers and software vendors will have access to our platforms. The data centre provides an open hub that anyone can join and then connect to our markets. Equinix already hosts many service providers, so they will be easy and cost effective for our customers to access.”

Deutsche Börse Systems says it will continue to focus its systems on the specific needs of its markets, rather that creating a one size fits all solution and, in future, plans to concentrate not only its trading platforms but all its relevant infrastructure in the Equinix data centre.

In the short term, it has struck a deal with Equinix that limits the prices customers will pay for data centre services. “We want to offer customers an open hub with high quality services at attractive market prices rather than premium prices,” concludes Kluber.