CME Developing Advanced Global Trade Matching System

This week the Chicago Mercantile Exchange (CME) revealed that it has been working with IBM Research on a global trade matching system that practically eliminates the impact of data latency differentials, a significant problem that hinders the trading of highly active CME-based contracts in geographically distant financial centers, such as London and Sydney.

During a press event at IBM Research's Thomas J. Watson Research Center in Hawthorne, N.Y., CME's chief technology officer Charlie Troxel said that currently it takes 50 milliseconds for a local order (in the Chicago area) to be received by the CME, processed and returned to the sender. However, because of the distance an order needs to travel from London, for instance, it could take 300 milliseconds -- far too slow for today's automated trading systems. "This is pure physics," he said, explaining that the orders are traveling at the speed of light and it is impossible to send the trades faster.

To reduce data latency to far-flung financial centers, the CME and IBM have developed a "local matching and connectivity optimization system" so "liquidity in multiple financial centers can be matched locally at the best price for highly liquid contracts," eliminating the 300-millisecond delay in the current environment. "Anybody that has a centralized exchange or [matching] service is facing this problem. The CME has around-the-clock trading. This is a breakthrough technology."

In fact, Troxel says that the CME's matching system, which is still being developed by the CME and IBM and might be ready for deployment sometime in 2006, has the potential to change the marketplace. "People will go where there is liquidity. If we capture market share with this, we win. People are trading with the data latency now. How much more will they trade if there is no latency?" IBM is dubbing the technology, "The trading platform for the next century." Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio