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Low Latency, It’s Not Just for Hedge Funds Anymore

Will 'Chief Latency Officer' be the newest title on Wall Street?

At yesterday’s Wall Street & Technology event, "Accelerating Wall Street," industry technologists and traders gathered to find out the latest in low-latency trading. Many hedge funds, broker-dealers, exchanges and even some traditional asset management firms were present. All were looking for that nugget of information that would give them just a small edge over their competition.

In the past achieving speed at the millisecond or microsecond level was more important to quant traders and hedge funds. But yesterday’s event made it clear that even traditional asset managers are considering getting into the game. Several were in the audience, intently listening and gathering information.

After keynote speaker Stephen Goldman, Director, Enterprise Architecture, at the CME Group, discussed many ways to reduce latency, from colocating servers to hardware acceleration, he was asked to choose his top priority -- the one thing that is most important to reducing latency. He pointed to good application or software design. This theme was reinforced by other speakers and audience participants throughout the day.

Michael Mollemans, head of electronic execution and sales, Daiwa Securities America, was among those who agreed with Goldman. When Mollemans was asked about the use of hardware acceleration tools such as Graphical Processing Units (GPUs) and Field Programmable Gate Arrays (FPGAs), he suggested that people not throw hardware at a problem before really figuring out how they can reduce latency by fixing what they have currently. He added that there are many ways to reduce latency in application design, networks, etc., before getting to the point of using hardware accelerators.

CME Group's Goldman also discussed the increasing demand for colocation. The exchange has been offering the service for four years, but, he notes, it’s still growing in popularity among customers. One of his concerns is that customers are not creating backup sites to their colocation sites.

“Customers need to worry about disaster recovery, they need to have multiple colocation sites. I don’t think the industry has gotten to that yet,” Goldman said in his speech.

However, some attendees said the cost to create a backup “colo site” would be prohibitive. One commented that if his colocation site was affected by disaster, so would the rest of the industry, suggesting this was justification for not having a backup site. “There wouldn’t be anyone to trade with,” he joked.

Goldman also commented that there is a direct relationship between latency and order volume: When you decrease latency, volume takes off. But he quickly noted that the increase in orders doesn’t necessarily equate to an increase in trades.

Lastly, Saro Jahani, CIO, National Stock Exchange, noted that the issue of latency is so important that he wouldn’t be surprised if the newest title on the Street was that of a "Chief Latency Officer." Judging by the number of people that turned out for the event, the industry would have many qualified people to choose from.

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