December 16, 2013

IEX, the first alternative trading system (ATS) owned by buy-side investors, has deployed an ultra low-latency ticker plant from Redline Trading Solutions to provide market data to the new trading venue.

The move shows that dark pools are relying on direct data feeds from the exchanges as low latency is a key requirement for matching orders at the best price.

IEX launched its ATS on Oc. 25 and has been using the Redline 3 Accelerated Ticker Plant since day one to calculate the most accurate national best bid and offer (NBBO) pricing from the direct feeds. “The low latency and software deployment was attractive to us,” said Ronan Ryan, chief strategy officer at IEX in an interview today

Since going live seven weeks ago, IEX has been using Redline’s InRush 3 ticker plant to obtain market data for its smart order router, which utilizes the NBBO calculation to route orders to the best price in different exchanges. The four partners that started IEX came from RBC Capital Markets where they were well known for their smart order router, according to Ryan.

“We want to have the lowest latency for what the NBBO is,” said Ryan. Recent outages with the securities information processor did not play a role, according to Ryan, since IEX’s strategy is built around having the smart order router access direct feeds. However, the firm has subscribed to the consolidated feeds as a backup, he said.

Under Regulation NMS, a dark pool such as IEX can’t execute through a price that is inferior to any other prices in the market. For this reason, IEX is using the Redline’s ticker plant for its smart order router and for trade-through protection under Reg NMS. “Client orders where they are resting or coming into the venue, won’t execute a trade at an inferior price,” said Ryan, who explains that IEX is connected to all 13 US equity exchanges.

Eyeing the needs of investors, IEX is using patent-pending technology to build a safer marketplace with fair access and simplicity, according to a video on its site. With 13 registered exchanges, and over 40 dark pools, plus numerous algorithms, today’s over complicated market structure is making matters worse for investors, the firm said in its video. IEX will provide a place to find as much liquidity as possible and prevent signaling to high frequency trading firms’ predatory strategies, according to Ryan. In contrast to many other dark pools, owned by competing brokers, IEX is owned by an institutional investor consortium of mutual funds, hedge funds and individuals.

Although IEX doesn’t have brokers as owners, the only subscribers are brokers. Over 70 brokers are currently connected or in the process of connecting to IEX. Rather than disintermediating the brokers, Ryan said IEX recognizes that buy side firms need to trade through brokers to pay their bills for research and corporate access. “What we stand for is liquidity on the investor’s terms,” said Ryan. “We try to go out and find them blocks and sizeable trades without disrupting their current broker relationships,” he said. Speed is very important to IEX as well. “It’s not paramount to our trading but when you are trying to build an efficient smart order router understanding the market, speed is very critical, he said.

Redline’s InRush Accelerated Ticker plant is used in several different dark pool services, and it’s technology is used in smart order routers and by HFT firms. The ticker plant is built with multiple levels of redundancy and high levels of performance during

According to CEO Mark Skalabrin, one of the important features of Redline is that it runs on mainstream technology. “This software is accelerated to run on Intel platforms, with standard IT infrastructures, without esoteric hardware, getting the lowest latency possible to form the [order] books and feed the data into their applications,” said Skalibrin. “We take all the exchange feeds, look at every message coming across the wire and then build a derivative view of the markets for what the client has subscribed to,” said Skalabrin, adding, they only get the information they requested for their client application. Citing improvements in Intel’s micro-architecture and numbers of cores, Skalabrin said,“You can get best in-class latency performance, and leverage the advantages of doing it on the mainstream technology with lower infrastructure cost and much lower response time when issues arise,” he added. Beyond speed, Redline's ticker plant gets deployed in places where high reliability is important, he said.

Deploying a software solution on mainstream technology is valuable to IEX, according to Ryan. “The way we designed our architecture we wanted flexibility as opposed to having a vendor’s hardware or even software vendors that have a very cookie cutter way they want their technology deployed. I don’t want to be forced into a specific hardware situation,” said Ryan. Looking ahead, IEX plans to become an ECN sometime in 2014, and after that, should volume warrant it, the goal is for it to become an exchange.

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Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...