Surging Electronic Trading Volumes and Reg NMS Require Financial Firms to Enhance Underlying Technology Infrastructures

As trading activity becomes more electronic and federal regulations create more information requirements, bigger and faster IT infrastructures will be needed to handle the increases in trade volumes and the associated market data and messaging.

Why It's Important: With Reg NMS already shaking up the industry and MiFID lurking around the corner, financial services institutions will be challenged more than ever not only to manage multiple new data streams, but to provide visibility into the data as well. Add to that the huge uptick in electronic trading and the associated explosion in market data, and it becomes apparent that many IT systems, already running at near capacity, will be in dire need of an extreme makeover. Simply adding additional servers is no longer a viable option as it adds more complexity and cost. Rather, financial services firms will be forced to consider alternative ways to manage data, such as hosted extranets, and to add functionality that offers real-time visibility.

Where the Industry Is Now: Market data flows in from more sources than ever at volumes and speeds human traders can't react to. To support electronic trading, leading firms are bolstering their IT infrastructures with bigger "pipes" capable of handling the oncoming data influx. "Firms need to get that information across the enterprise, so to that end, they want a low-latency client transport or some type of internal messaging in order to feed downstream applications," says Tom Price, senior analyst with TowerGroup. Most firms have, or soon will be adopting, a "low-latency race car," he continues, suggesting an analogy in which content is the fuel that powers the car, and the IT infrastructure is the engine that delivers the motor's horsepower. "Powerful, robust infrastructures are really going to be one of the main drivers in electronic success," Price says.

Industry Leaders: Merrill Lynch is working with tech provider Wombat Financial Software (Incline Village, Nev.) to build out Merrill's next-generation electronic trading platform. Wombat will provide 30 to 40 new feed handlers for Merrill. JPMorgan's Global Market Reference Data (GMRD) infrastructure holds more than 5 million securities in its source database, helping JPMorgan triple the number of securities that it processes through automated feeds, resulting in significant cost savings, according to Peter Serenita, chief data officer, JPMorgan Worldwide Securities Services.

Technology Providers: Low-latency trading solutions have begun to crowd the marketplace. Providers include Wombat, Kx Systems and Skylar. Exegy recently joined forces with Hyperfeed to produce hardware for low latency solutions. Sybase offers solutions that address both speed and depth of data feeds.

The Price Tag: TowerGroup's Price says that as a rising number of firms "max out" their infrastructures, in order to expand capacity, extranets and other forms of outsourcing will become the way of the future.

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