Long view on market data 1990-2011 from derivatives exchanges
Posted by Jeff Wells on Mon, Nov 15, 2010
On 3rd November, I was privileged to attend the Financial Information Forum derivatives event in Chicago at the CBOE. Every year, the FIF holds the meeting during the Futures Industry Association Futures and Options Expo. It is the absolute best place to get a quick view of what’s going on from all the important derivatives exchanges in one fell swoop. And as you might well know, the derivatives exchanges send out an enormous amount of market data so it is well worth finding out at first hand what is going on, particularly as you make plans for 2011.
I can’t possibly condense all that I heard into one short blog but there are some things that stand out.
The growth of options market data has moderated over the last twelve months but all the exchanges and OPRA are continuing to improve systems so all of us downstream really have to be prepared for larger peaks.
Tom Knorring from the CBOE provided a terrific chart of peak messages from the US OPRA equity option exchanges going back to 1999. The chart really puts things into stark perspective. As you can guess, most of the growth has come from quote automation.
The ISE was the first to fully automate ten years ago, but all the exchanges and their liquidity providers now boast sophisticated electronic systems.
It is now relatively easy for the exchanges to launch new product on their various electronic platforms and sometimes they are able to launch entirely new exchanges with variations in operating model such as the brand new BATS and C2 exchanges this year. Indeed, the cognoscenti at the FIF believe that there could be as many as three new options exchanges in 2011.
As an example of exchanges on brand new technology sharpening their game, NYSE Arca and NYSE Amex are both preparing to increase their ceilings for outbound data by 3 million quotes per second by the end of 2011. At the moment each platform can send out 4 million messages per second. That’s quite a lot by anyone’s scorecard. It doesn’t mean that they will send out that amount, but they will have the capability.
Possibly the most intriguing graph was presented by Dr Martin Zinser. It showed a remarkable long term trend over 20 years of the increase in number of transactions per day and the coincidentally remarkable reduction in processing time.
Later on at the FIA show, we met old friends from the markets at various receptions and drinking dens. We mused and wondered if the graph suggests that in 20 years orders will be arriving before they leave? Hmmm. Probably not! (It is amazing how wonderful ideas flow under the influence of alcohol). Another favorite question- will order latency ever approach 10-43 seconds? Probably not, but can’t rule it out. Maybe that is looking too far ahead (cocktails do that sometimes).
What we do know is that the market data tsunami will continue in the derivatives markets and the best thing to do now is to be prepared for strong bandwidth and message per second growth in 2011. Bottom line- get your technology and market data budget properly prepared for more exponential growth.