Direct Feeds are not Unfair
Posted by Jeff Wells on Mon, Oct 25, 2010
On Thursday 21 October 2010, we held the monthly FIF www.fif.com market data capacity working group conference call. It was a good workmanlike discussion where the exchanges and the SIPs (securities industry processors) talked about the last month’s peaks in market data and discussed what might be coming up next.
Even while we were talking, the market pushed out a peak of 3,555,843 messages per second at 10:08 am. That’s a huge number but not enough to break the record of 3,732,957 recorded on 31 August. I mentioned it during the call, but no one was surprised.
The reason for Thursday’s peak was the positive market reaction to a decline in US weekly jobless claims and some strong corporate earnings reports. eBay’s shares, for example, soared nearly 6%. And the Dow Jones Industrials was briefly at its highest point since September 2008.
I saved some of the Wall Street Journals from September 2008. The front pages are truly historic, and just unfolding the broadsheet brings back some of the emotions from that time. If you didn’t stuff old copies away in your bottom drawer, and you subscribe to the journal on line, you can go back 2 years to relive the doom and gloom. Not everyone has the stomach for it! Maybe that’s why they won’t let you go back over 2 years.
As well as stuffing newspapers in bottom drawers, here at Exegy we were running www.marketdatapeaks.com in September 2008, and I saved some of the data. You might think that the message rate might be comparable to today given the gyrations of the market. I looked back at some of the graphs. In fact, a typical crazy day- September 18th 2008, was 1,064,694 messages per second. By today’s standards, that’s really not much!
To be fair, we are now running some feeds into www.marketdatapeaks.com that just didn’t exist in 2008, such as NYSE Arca Options. In addition, BATS and Direct Edge are full exchanges. So there has been growth in the sheer number of exchange contributors. But it is a fact that if you are a serious trading firm or market data vendor receiving feeds, you probably have to take all of this data to stay current and competitive.
It has been said by some detractors of high frequency trading that the escalating costs give an unfair advantage to traders who take direct feeds. But they have failed to take into account new technology. It does indeed take more bandwidth to accept all this data, but bandwidth costs and technology is competitively priced. There are many data centers such as Savvis, Telx and Equinix vying for business and this keeps hosting prices at commodity levels.
In Exegy’s niche area, hardware acceleration means speed but it also means capacity. So a single 2U Exegy server can deliver full normalized market data streams with latencies in the single microseconds and the Exegy Ticker Plant can accept all the stock and OPRA data in the United States including full order books. In fact, www.marketdatapeaks.com is a working example of just such an installation. This is hugely significant because direct feed recipients can replace many racks of servers with one system, shrinking their costs considerably.
On top of this, the operational cost is also taken off the shoulders of Exegy customers because Exegy monitors and manages the box 24x7.
So speed, capacity and cost advantage is now available to any trader at just $1000 per month including market data. So to my way of thinking, the fuss over direct feeds conferring unfair advantage is completely unfounded.