This article was originally published on tabbforum.com on January 17, 2018.
In 2017, the market for low-latency technology for HFTs reached maturity and growth has flattened out. Although speed is still part of the equation, to stay competitive, capital markets’ participants constantly seek innovative approaches to stay ahead. This year, I do see a few interesting innovations coming …
2017: Speed reached its peak
The race to zero is stabilizing, but the opportunities for new advantages enabled by microwave remain, particularly in less-developed markets, and it will continue to change the automated trading environment. The ultra-low-latency technologies initially utilized by HFTs have now been adopted on a broad scale. Now, with everyone at nearly the same speed, firms need to identify new innovations to drive alpha and stay ahead. Adding to this, there is a voracious appetite for bandwidth, coupled with a need to connect to global locations. To ensure costs and service levels are maintained, I see a few technologies emerging in 2018. Fiber and microwave won’t go away, but we will build on that foundation with additional hybrid networks this year.
Looking at Low-Latency in 2018
Despite the fact that speed has reached its peak, there is still a strong demand for it – but now increasingly combined with data capacity and security. We are seeing new approaches in which firms are looking to address their needs for speed along with bandwidth capacity and location, and, in some cases, turn technologies such as the cloud on its head – to get an edge.
Wireless approaches like microwave a few years back received a lot of attention due to step function speed advantages over fiber and its ability to transmit data near the speed of light. While they are not leaving speed behind, firms are now combining speed with machine learning and other strategies to stay ahead. Additionally, while microwave was the rage in the US a few years ago, we’re now seeing it across both European and Asian trading hubs. These microwave networks and their operators are making the market more efficient and putting most players on a level playing field.
Go West, a consortium with some of the world’s fastest traders, combines fiber, wireless and submarine cables connecting Chicago and Tokyo to beam data between these major trading venues. Go West provides the necessary reach while offering a unique approach to speed with ultra-low-latency connectivity between North America and Asia.
Low-Earth Orbit (LEO) Satellites
Low-Earth orbit satellites (LEO) could be one of the more progressive developments in 2018 and beyond. It is possible that HFTs could be part of the initial adopters in 2018. LEO can handle the speed, but it has its limitations on bandwidth. Hence, combining it with fiber or microwave will be key to handling bandwidth demands and diversity – making it a perfect complement to LEO when it comes to HFT.
Advent of the Cloud
Over the past year, we have seen an accelerating move toward leveraging the capacity and agility enabled by the cloud. With that comes the need to consume high-performance market data directly within cloud environments. Additionally, we have seen firms moving both their front- and back-office infrastructure to the cloud, depending on performance requirements. Making the connection between cloud and the traditional capital markets ecosystem, particularly the exchanges, market data feeds, and market data and information providers, will continue to accelerate this year.
Five years ago, we never would have thought of financial services companies strategically utilizing the cloud in this way. At that time, it was strictly a test and development environment. Today, we see capital markets firms with cloud-first mandates moving not only applications, but infrastructure out of legacy data centers into the cloud. The cloud is playing an increasingly important role in the capital markets.
Here are a few of the use cases we’re seeing:
- Cloud-based Brokerages: Real-time quoting and trading is possible with market data and trade execution feeds delivered to cloud environments.
- Proprietary Trading Firms: Multi-asset feeds delivered straight to the cloud for archiving and testing without constraining network resources
- Quant Strategies: Real-time market data to a public cloud like AWS is allowing firms to turn up/down compute capacity as needed and allow them to test strategies before committing to additional CapEx.
- Market Data/Charting or Brokerage Services: Would utilize public cloud infrastructure to gather, consolidate, manipulate, visualize and redistribute to their own customers via the web or mobile apps. They are typically leveraging real-time data, though for non–ultra-low-latency sensitive environments.
We have been seeing a strong need for an institutional-grade source of accelerated, real-time market data in native format from top exchanges such as CME, Nasdaq, and NYSE. Additionally, firms are seeking these market feeds for integration with their cloud instances globally across leading IaaS platforms, including Amazon Web Services, Microsoft Azure, and Google Cloud.
As the capital markets mature, we see some interesting technologies being developed, introduced and tested. The race to zero will continue and with it the introduction of new technologies and approaches to ensure players win.