The Buy Side Should Get Equal Access to Low-Latency Executions

There is so much focus on low-latency these days, but this has not been so much of a concern for the buy side. This is understandable because most buy-side firms use algorithms hosted by the sell-side, and most of the so-called low latency services coming out are targeted at broker dealers and hedge funds.

But perhaps the buy-side should pay attention to make sure there is a level playing field. Buy-side firms that are executing trades through broker-sponsored algorithmic trading strategies should make sure they are getting equal treatment with the hedge funds customers when it comes to low-latency access to execution venues.Earlier this week, BT Radianz announced the launch of a service called Radianz Ultra Access that offers one-millisecond connectivity between exchanges and brokers in the New York metropolitan area.

Prior to this new service, Radianz's standard model was the Proximity Service, which provides 10-millisecond round trip delay, and now with Ultra, it's taken that down to 1 millisecond. While the telecom vendor's standard model, Radianz Proximity for hosting and connectivity, is available in Chicago, New York, London, Paris, Singapore and Hong Kong, Radianz Ultra is only for the New York tri-state area.

"One of the main beneficiaries are the hedge funds using it for algorithmic trading, who will be using it for millisecond connectivity to those venues," says Mark Akass, chief technology officer at BT Radianz who is based in London. Akass says he doesn't see this as a service that the whole community would use. It's meant for a subset of the top tier that would be pushing their algos to operate at that kind of speed. The targeted customer base includes the broker-dealers offering services to hedge funds and also the hedge funds themselves that may run their own algorithms on this shared infrastructure, the CTO explains.

Currently, Radianz is providing the high-speed access through certain venues, namely Boston Options Exchange, BATS ECN, International Securities Exchange, The Nasdaq Stock Market, New York Stock Exchange and NYSE Arca. "We worked with the exchanges for some time," says Akass. "What we've done is enhance the connectivity of the infrastructure into their site."

The high-speed connectivity is "preinstalled and waiting," says Akass. "We offer the connectivity as a package." Customers can take advantage of some or all of those exchanges, he adds. The customer could be a London-based hedge fund that wants to trade in the New York market and decides to colocate its algo service in the infrastructure in New York, says Akass.

In addition to the high-speed network and connectivity, Radianz is also providing a performance dashboard that provides information to users on how fast the data is flowing and how each venue is responding. Using this real-time information, this means hedge funds can tune their algorithms to route to certain markets.

If brokers are providing low-latency access to hedge funds and hedge funds are co-locating their own algorithmic trading servers in data centers close to exchanges, shouldn't the buy-side think about this, too? Over time, as buy-side firms develop their own algorithms, they may want to host their own proprietary black boxes nearer to the source of data. After all, hedge funds should not have a lock on low latency. 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 the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio