Mostly… fixed income and cross product eTrading

June 25, 2007

Algos in Silicon

Filed under: 2015, Algos, etrading — holky @ 5:40 pm

A topic that came up at the Financialnews Sellside Technology seminar was the ever-increasing demand for proximity technology – where systems are being placed as close to the exchange as possible in order to avoid latency.    In the context of “what’s coming in the future”;  one question posed (by Dave Cliff the “ziptrader”) was how long before exchanges charge to host a firm’s algorithms coded on silicon?  So rather than connecting a machine with the shortest possible cable between itself and the exchange, a card containing the algos is instead plugged into the exchange machine itself?  An interesting future prospect of revenue stream for an exchange? 

A question raised was whether that materially impacts the ability for providers to deploy algos to customers immediately; and on that I thought “immediately” was interesting terminology.. (same thought applies to ullink framework that avoids the need for ullink software release just to get new algos out of the door).  Are customers willing and able to utilise new algo’s immediately?  Surely there is is a time lag before a new algo is used materially at most customer-side.  Time for the customer to understand what the algo is trying to achieve and how, then for this to be cleared by the “fat controller” and worked into the [new] trading strategy.  

How long is the time lag?  Depends how much trust the customer has in the algo provider (eg sellside) actually getting this sort of stuff right each time.  Also trust that the software provider (OMS/EMS/intermediary who exposes the route into the algo to customer) isnt going to muck it up along the way, and trust that it is possible to get a comprehensive audit of what where and when to show that an algo acted in accordance with it’s claimed design – whether for best execution certification or when there are occasions that the results are vastly different than expected.

Much of this comes down to trust that the testing has been done and the tests covered everything they should.  Surely this isnt materially different if the algos are on silicon plugged into the exchange rather than software somewhere in the pipe between customer and exchange?  And given the resource that could be given to this, if there is a need to establish a lifecycle which includes pressing algos onto a card which can then be plugged into the exchange machine, is this really going to slow algo deployment down to the extent that this impacts sellside ability to grab competetive advantage?



  1. I haven’t heard of any dealer moving their FI etrading deployments to Milan to be physically closer to MTS, or to Frankfurt for Eurex.

    Maybe some technically agressive hedge fund will set up in Milan if they’re allowed on MTS. But I’d be surprised. I suspect the sources of latency are altogether more prosaic than light speed physical constraints, and that all this talk of being in the same building as the exchange is an etrading urban legend.

    Comment by etrading — June 25, 2007 @ 6:59 pm

  2. How long before we see a bank come out with the argument for their remotely located system being better “because weve got better developers” ?

    Comment by holky — August 11, 2007 @ 5:29 am

  3. Ah, while not making any statement about code quality, just seen that ORC launched an algo platform colocated in same building as the CME matching engine in order to reduce latency. Just capitalising on “latency fear” or genuinely delivering that split second opportunity?

    Comment by holky — August 11, 2007 @ 5:30 am

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