In the arms race to serve the high frequency trading crowd whose strategies rely on speed, Deutsche Bank will offer a low-latency direct market access trading solution that is clocking executions at 1.25 microseconds.
“We’re doing things at wire speed,” said Ralf Roth, Global Head of Product Development for Deutsche Bank’s global equity electronic trading business, in an interview yesterday with Advanced Trading.
Whereas most low latency trading solutions are built in software, Deutsche Bank’s solution is based upon a field programmable gate array (FPGA), in which blocks of logic are programmed into a chip.
“This is a bit of a revolution, since it’s breaking a barrier from previously doing a couple of hundreds of microseconds and then 80 microseconds which is the normal software-based Ultra products’ latency,” said Roth. “That is the market standard and now we’re getting into the low-single digit microseconds. That has never been done before,” he said.
Deutsche Bank deployed the patent-pending card in its lab in the first quarter. As of Monday, the first client was ready to begin testing it. “The trade comes into the card, the card does the protocol translation and risk checks” explained Roth. “We’re bypassing the PC and doing everything in hardware,” explained Roth, who runs the global product development team for equity trading.
While the specific work came out of the New York office it is also intended for use in Europe and Asia. “It is not specifically built for the U.S. market. It’s non-market specific and configurable. We will roll it out as we see fit over the next year, mainly in the U.S., Europe and then in Asia.”
The Ultra solution will appeal to the bank’s sponsored access clients who are facing new market access regulations from the Securities and Exchange Commission (SEC) to ban naked access by requiring pre-trade risk checks. Right now, the product is live in Nasdaq’s data center in Cartaret, New Jersey, and it will soon rollout to Direct Edge, Bats and then NYSE Arca. When it gets to Europe, the London Stock Exchange, NYSE Euronext and Xetra will be the main ones where latency really matters, said Roth.
Deutsche Bank will offer the technology as part of its Ultra suite of products under the Autobahn electronic trading brand. “It’s our new generation… where you can build your own logic into the chip,” explained Roth.
While all the engineering and IP was done by Deutsche Bank’s team, the bank contracted some of the low-level programming work to a West coast firm using the HDL language to program on the chip. The technology is widely used in the defense and oil and gas industry.
Though other Wall Street firms are working with hardware-based solutions, and in some cases, they are working with vendors in the space, Roth believes that Deutsche Bank has the competitive edge. “Our solution is so far the lowest latency we are aware of that works close to 1 microsecond because we work with standard hardware components,” said Roth.
“If you look at the time horizon, we think we have an edge,” says Roth. “Our vision is that hardware will proliferate in this space over the next 15 to 24 months,” said Roth. “This is going to be the standard in low latency trading and more speed is going to be adopted in algorithms,” he predicted.
However, latency has become such a marketing buzzword in the electronic trading industry, that the concept can vary based on how it’s measured. Deutsche Bank measures the latency from wire-to-wire, when the message hits the card and when the message leaves the card,” said Roth, adding, “There is no ambiguity.” In this type of work, the bank uses a high resolution, oscilloscope that connects to the chip.
But 1.25 is just the start, he said, adding, “Getting the latency below one, is actually a tuning exercise.” Roth said he’s “confident” that the bank can get the latency below one microsecond. “This is about engineering. You can do these things if you are really focused and have the right engineering skills available,” he said. "It’s also about applying new techniques to the financial markets," he continued. While a lot of proprietary trading firms and hedge funds are excited about this, Deutsche Bank is also one of the first firms to use low latency access in algorithms for the buy side, he said.