The growing importance of low latency market data

The multi-venue trading environment, turbulent market conditions, competition between sell-side players, as well as the growing number of automated trading systems have all helped to maintain the flow of market data. The need for low-latency market data is now an absolute must for the sell side.

Even when market volumes have been lower, as they have been in recent months, the flow of order book related market data has remained relatively high. There are numerous reasons why this trend is continuing, including the use of black box trading systems, such as smart routers, liquidity seeking algorithms (algos) and other automated trading systems seeking to pool fragmented liquidity and improve order execution. In Europe, the emergence of a number of new MTFs has added to the pressure. The MTFs generate a particularly high level of updates, as orders are being constantly placed, removed and updated.

The often-turbulent market conditions have naturally led to bouts of volatility, which has also contributed to an increase in market data. There has also been an increase in the number of trading days with violent volume spikes; this further increases the challenge for the vendors’ industry to distribute low latency market data.

The blue histograms show the market data volume processed by SunGard Global Trading Market Data Servers from May 2008 to September 2009. The calculation was based on an index with a value of 100, composed from the average of market data volume processed during the second semester of 2008. The red curve shows the number of days in a month with violent market data volume spikes from May 2008 to September 2009.

Beyond low latency
Over the past 24-months, SunGard has invested significantly in R&D to meet these IT goals. Now, the new SunGard Global Trading market data distribution servers (MDDS) have increased market data throughput by 10 times compared with our legacy servers. New MDDS can also achieve ultra-low latency down to the microsecond level.

Delivering (ultra-)low latency and flexible added-value market data to trading systems is becoming a pre-requisite for most sell-side firms in today’s market conditions. And this trend is unlikely to diminish in the future, especially given the increased amount of high-frequency trading.

The physical limits of a network to achieve low latency capacity depends on one hand on the distance between the origin of an order and its destination, and on the other the properties of fibre optic cables. The speed of data flow cannot exceed the speed of light, which is 299,792, 458 meters per second. Given these limits, there is a final frontier that technology cannot breach – latency as low as between 1 millisecond and 5 milliseconds – and that helps explain the ongoing demand for collocation services at exchanges sites.