Jonathan Beyman is chief of operations and technology at Lehman Brothers, as well as an executive vice president. In addition, Beyman has served as the firm's CIO since 2000.
Question: Is data latency as big an issue for institutional traders as it has been made out to be? What is Lehman Brothers doing to avoid data latency issues?
Many years ago, an antidrug media campaign used "speed kills"as its tag line. This was at a time when users of computer terminals - big bulky green screens - measured and accepted response times in seconds.
In the new reality of algorithmic trading, the exact opposite can be said: latency kills. These days, the trading world measures throughput to liquidity pools in thousandths of a second, and latency caused by anything more than the immutable constraint of the few milliseconds of time it takes light to travel a physical distance is considered problematic.
Ultimately, trading is about responding to information and transferring risk. It may sound obvious, but whoever accurately analyzes and responds the quickest, and transfers risk most efficiently, has an edge, which can mean significant profits. And while shaving 10 or 20 milliseconds (i.e., 1 or 2 hundredths of a second) may not sound like much, it can be the difference between transacting or not transacting, or getting order flow from a stat arb hedge fund or seeing that flow go elsewhere.
For Lehman Brothers, dealing with latency has meant reengineering some of our trading platforms to optimize them for high throughput (on the order of 1,000 transactions per second), using in-memory-database and caching technologies as well as large server farms, and eliminating anything we can find that slows our throughput.
So far, we have resisted requests by certain hedge funds to put servers into our data centers, as yet another step to shave a few milliseconds, but that may be coming sooner rather than later. While it may be true that you only become swift when you are pursued, if you're playing on this field, don't expect the pursuit to end any time soon! -Jon Beyman
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