May 03, 2013

High frequency traders are engaged in an arms race to shave milliseconds off their algorithmic trading programs, but exchanges claim they are out to level the playing field with faster data feeds available to all customers.

In early May, Nasdaq OMX and CME Group expected to launch a lightening-fast market data feed based on microwave connectivity between their respective data centers in Cartaret, New Jersey and Aurora, Illinois, a route that is over 700 miles long.

“We feel this levels the playing field for all those that don’t have low-latency infrastructure,” commented Stacey Swanstrom, head of Access Servces at Nasdaq OMX in an interview with Advanced Trading.

CME-Nasdaq microwave connectivity provides customers with the quickest data feed delivery option from Cartaret to Aurora, which is under 4.25 milliseconds (one-way) or 8.50 roundtrip —versus 6.65 milliseconds on the fastest fiber route, according to both exchanges. After conducting an RFP process, both exchanges partnered with Strike Technologies, which had the technical experience with an ultra-low latency wireless technology.

Right now, the microwave connectivity is only for market data feeds, not orders, because microwave doesn’t have unlimited bandwidth. Nasdaq began taking orders on April 1st from a diverse group of clients and planned to go live on May 1st for a 30-day trial period. “It will be offered to all of our customers — banks, broker dealers, hedge funds, proprietary funds, managed service providers. There’s a wide range that have already started taking advantage of it,” explained Swanstrom.

The cost is $20,000 a month for microwave; customers must sign up for a 12- month period.

CME is targeting over 100 direct customers comprised of hedge funds, proprietary trading shops, banks and FCMs in its colocation facility. In addition, it hosts about 25 service providers that can subscribe to the feed as well.

CME began receiving inquiries on microwave last summer. While microwave has been around and used for other purposes it’s fairly new in the trading industry. Until this point, firms have had fiber connections from Nasdaq’s data center in Cartaret New Jersey to Aurora in Illinois and to other data centers in Chicago.

The main difference between the two is that fiber is in the ground and microwave runs through tower to tower.

“We were hearing demand from our customer base that they were interested in trading ETFs from Nasdaq based on equity, fixed income and currency. You can do a spread trade between the cash and futures,” said Menacho. What Aurora would host would be the Nasdaq OMX products, the DJIA ETF or the CurrencyShares Euro Trust. Then from Cartaret customers could pick up a select set of currency, or fixed income futures,” explained Menacho. For example, the S&P 500 futures would be one of the products distributed out of Cartaret that customers had expressed interest in last summer.

“Last summer a lot of microwave technology firms were popping up and approaching our customer base,” said Menacho. Customers were finding it hard to navigate the reliability, when services would be available, the cost and the floor and ceiling for how many symbols would be made available.

CME hired an independent research company to solicit feedback from its customers to find out which symbols based on exchanges they wanted from a microwave network, and how the various companies handled market data filtering. CME looked at the microwave playing field and saw opportunity as one of market data.

However, microwave has limitations from a bandwidth perspective. For example, CME Group’s data center in Aurora is offering depth-of-book market data for 20 select Nasdaq OMX ETFs , while Nasdaq’s data center in Cartaret is offering inside and depth-of=book market data for select CME Group equity, currency and fixed income futures. “You’re not sending TotalView over a microwave link,” remarked Swanstrom referring to Nasdaq’s biggest feed.

“People still need their fiber,” said Swanstrom. “Fiber is still the most reliable way to get their data back and forth; it’s just not the fastest,” she said. Microwave’s reliability is about 99.7 percent, so people will still need their fiber as a back up. “Customers in CME’s facility have fiber connectivity options to and out of the facility for market data and/or order routing possibilities,” added Menacho.

Equal Access

Exchanges say the move to offer microwave data transmission is not so much about high-speed trading as it is about offering equal access to speed data, which informs various types of automated trading. They emphasize that the microwave connectivity is being offered to all of their clients.

“Speed always plays a part in who gets there first. Latency has always been an important factor in trading and it continues to be. And that’s for most trading, not necessarily to a select group,” said Swanstrom.

[Nasdaq, CME Building Superfast HFT Link]

Part of the value proposition is Nasdaq offering microwave under the auspices of a regulated exchange with equal access to everyone, emphasized a spokesman. “We wanted to level the playing field by giving all of the firms wireless technology to use for market data. It’s expensive and there are limited options,” said Swanstrom. In the colo facility, the client takes the microwave feed they have a cross-connect from their cabinet into Nasdaq or CME’s cabinet.

In February, Nasdaq OMX was the first to market with a short haul Metro Millimeter Wave service between its data center in Cartaret and the other major U.S. equity exchanges in Secaucus, Weehawken and Mahwah. Now it’s introducing the long haul microwave between Cartaret and Aurora. Nasdaq previously offered 40-Gigabyte bandwidth and a super cabinet for high -density power. “All of these next generation offerings are not only to focus on speed, but also capacity and power,” a spokesman emphasized.

Menacho said that microwave is in the spirit of CME wanting to offer more services to its customer base and digging into new technologies that customers are talking about. It also continues to work with fiber providers.

In April, Menacho held meetings with a number of different customer segments to educate them with some wanting the specifications since their servers need to read the feed.

While there are no plans to use microwave for trading, according to Swanstrom, that is definitely not off the table. Some people do use microwave for orders, but Nasdaq is not choosing that because there is not a 100% guarantee in terms of reliability. Swanstrom added, Nasdaq is continuing to build a premium liquidity pool in Cartaret and being the first to use microwave is part of that.

ABOUT THE AUTHOR
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 ...