Technology Companies Fly In The Face of Regulations, Continue Path of Ultra Low Latency

Enterprise network and managed application delivery technology firm CFN Services has launched yesterday a new low-latency direct market access (DMA) version of its managed high-performance market access and market data platform.

Launched under the designation Alpha Platform Direct Connect, the new platform is to be offered alongside CFN Services’ existing Alpha Platform, and utilizes the proprietary cloud in order to attain ultra-low-latency market data delivery and trade execution in congruence with the modern method of providing cloud based systems for platform hosting as demonstrated earlier this week by SpotWare Systems with the launch of its application cloud for cTrader and ChartIQ.

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Alliances with North American Venues

The intention of the new DMA platform is to provide lowest latency, direct market access and raw, full depth-of-book market data feeds via strategic relationships with major exchanges. Alpha Platform provides clients the direct connections to the exchanges they need through a combination of fiber and wireless networks ensuring highly efficient data delivery.

Although the company majors on network transformation and application deployment, CFN does consider the provision of network technology to global financial market participants as a significant part of its business, providing an enterprise solution to buy-side, sell-side and trading application providers with low-latency networks and proximity-hosted infrastructure to seamlessly integrate proprietary and best-of-breed trading applications.

In a statement issued by CFN Services, the company’s CEO Mark Casey explained: “More and more, firms trading in global markets require increased performance in their market access infrastructure to ensure best order routing and trade execution.”

Aiming this solution at an institutional target market, Mr Casey explains the increasing need for efficiency, especially when the trading requirements of market participants that trade using algorithms and other high-frequency electronic trading methods. Greater awareness and a degree of trepidation has arisen within market participants, leading to closer scrutiny of the systems used to conduct algorithmic trading and the reliability of such systems since Knight Capital’s disastrous algorithm failure last year which resulted in $440 million in lost trades.

“As budgets continue to tighten, clients seek more efficient solutions to obtain what they need without sacrificing performance. CFN’s Alpha Platform Direct Connect enables algorithmic traders, proprietary traders, hedge funds and technology providers to obtain the premium market data and market access they need to support their dynamic, low-latency trading strategies, while instituting a simplified and cost-effective solution”, concurred Mr Casey.

Focusing on Domestic Client Base

The company has launched the platform in the United States only, and has not made clear its position regarding plans to expand to other markets.

CFN Services specified what it intends the platform to offer its clients:

• Significantly reduce market access and market data costs via shared economics
• Improve trading performance through accelerated market data delivery and trade execution
• Decrease data infrastructure and operating complexity via supplier consolidation
• Scale operations quickly and affordably while flexibly accommodating changing trading strategies
• Maintain performance standards through CFN’s continuous monitoring and technology refreshes

Technology Arms Race

Traders using algorithmic methods and high frequency trading, along with technology firms providing the system to facilitate high frequency trading are engaged in an what appears to be a form of arms race. To beat their competitors, each trader is spending increasingly large sums on expensive technologies to increase the speed their trading. If actions are not taken to stop this arms race, investors could be worse off and economic welfare could be affected.

High-frequency traders go to great lengths to be faster than their competitors. They locate their servers next to exchange servers to minimize communication times. They pay for special high-speed data feeds and for the shortest communication lines between exchanges. They use extremely fast computers and write hyper-efficient computer code. Such is the industry demand for this type of trading environment that it is leading to the development of such low-latency networks aimed at this specific purpose.

Government officials and regulators such as the Securities and Exchanges Commission (SEC) in the US and BaFIN in Germany are currently investigating means of regulating this, the result of which will be interesting.

A small and easily implemented change in exchange rules could substantially impede this type of trading. Regulators are discussing a requirement by all exchanges to delay the processing of every order instruction they receive by a random period of between 0 and 10 milliseconds. This dialog has made its way into the corporate sector too, with companies such as EBS considering implementing a latency floor of 3 milliseconds.

In this high-technology and high-speed market segment, the difference between 1 microsecond and 3 milliseconds is a metaphorical lifetime.