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Algo Trading: Role of the Network
James BeekenCOLT Financial Services
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Agenda
> What COLT is seeing in the markets
> Some facts about latency
> Steps COLT is taking to tackle network latency
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COLT’s Market View
> There’s a lot of hype around low latency, but where has it come from?
> Which customers are demanding the lowest latency services?
> Focus on milliseconds now…what next…micro- & nanoseconds?
A sense of perspective:
> There is nothing we can do about the speed of light
> Network performance is limited by the fibre optic and a few other things
> Every 200k of fibre represents 1ms of delay
> It takes us 300 milliseconds to blink our eyes
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So What Causes Latency and can it be prevented?
Switching latency
> Introduced by hardware to “route” packets.– COLT Vision: Close to optical layer
Serialisation latency
> Amount of serialised time a packet takes over a connection– COLT Vision: Adequate dimensions for bandwidth
Propagation delay
> Optical latency of data through fibre– COLT Vision: close proximity to trading venues using local data
centres
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Some real network facts…
11.37
6.94
Speedof lightoveractualdistance
12.76.344.221137634FrankfurtLondon
7.773.432.2694343ParisLondon
COLTperformance(RTD ms)
Straight lineover fibre(RTD ms)
Straight linein vacuum(RTD ms)
Fibredistance(km)
Distance (ascrow flies,in km)
B-endA-end
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PH-> coming soon
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Exchange
Further Development of Proximity Market
Prox
imity
Dat
a C
entr
e
PropTrader
PrimeBroker
Buy-side
Exchange
MDV
MDV
Risk
Risk
Risk
MDV
Clearing
Exchange
Arc
hiva
lM
iFID
Man
aged
Serv
ices
TradeReporting
Exte
rnal
Con
nect
ivity
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Conclusions / Final Thoughts
> Network latency is improving with advancing technology, but willalways be limited by laws of physics
> Some systems will always remain in-house – COLT will continue toinvest in lower latency technology to serve these institutions.
> Opportunities do exist for arbitrage & market making firms tocapitalise on a location advantage, but requires major architecturechanges
> Small proportion of buy-side pushing for lower latency solutions, butsoft-dollaring and broker-independence influencing decisions