On the heels of breaking off an agreement last November to merge with Chicago-based market data vendor HyperFeed Technologies, Exegy Inc., a St. Louis-based technology provider is launching a new ticker-plant service initially to 21 Wall Street customers. But when Wall Street firms consider Exegy's new ticker plant, should they care that Exegy jilted HyperFeed at the altar? And should they be concerned about a lawsuit pending in Illinois?Exegy is forging ahead with plans to launch an ultra-fast ticker plant that could fulfill the dreams of latency sensitive electronic traders. After breaking off the merger agreement on Nov. 7 with HyperFeed, Exegy built its own ticker plant in St. Louis, utilizing the concept of hardware acceleration. A few weeks ago, its first client, a non-U.S. investment bank went live with the Exegy Ticker Plant in London, according to Exegy's CEO Jim O'Donnell. Now O'Donnell is out selling the service under an exclusive program to only 21 clients.
Based on work done at Washington University's research labs, Exegy has invented hardware acceleration to speed up market data processing. The new Exegy Ticker Plant is able to process one million messages per second (MPS), according to the company, which announced the service last week. Exegy says it can achieve end-to-end latency averaging less than 150 microseconds operating from a single box - a 19-inch, rack-mountable 3U appliance. This is a magnitude of 10 times faster than the current software-based ticker plants, says O'Donnell. This is possible because instead of using software like other ticker plants, the Exegy Ticker plant "is built on a revolutionary, new compute platform based on reconfigurable hardware," stated Scott Parsons, Exegy's chief scientist in the release. Exegy hired Parsons as part of its management team in 2005; he previously worked for Reuters and for Bridge Information Systems for more than 20 years. To build out the ticker plant Exegy was able to hire individuals from Reuters' global market technology group, which is located in St. Louis, and now has 45 employees.
"The power of Exegy is the low latency and the ability to deal with the increasing market data rates," says Jim O'Donnell, CEO who visited Wall Street & Technology's offices last Thursday. "This takes capacity off the table which is something they need to deal with in IT shops," adds O'Donnell. Exegy is targeting the solution - which it will lease for $30,000 a month for two years at the electronic trading community. The client will get all the upgrades in the hardware and software, including service and access to data feeds, under a two-year agreement. "Everybody is interested in finding a latency solutions to high market data frequency," says O'Donnell, a former Goldman Sachs vice president, who was also founder and CEO of Bush O'Donnell & Co., a St.Louis-based financial services holding company with subsidiaries in equity management, venture capital, insurance and manufacturing.
While this sounds like a cool technology, there is a potential speedbump surrounding Exegy's superfast ticker plant that Wall Street customers should be aware of before they enter a relationship with the vendor. HyperFeed and PICO Holdings Inc., HyperFeed's parent company, have filed a 16-count lawsuitagainst Exegy in the Circuit Court of Cook County, Illinois, citing deceptive practices and misrepresentation, and is seeking monetary damages as well as injunctive relief from Exegy.
According to the lawsuit, HyperFeed and PICO suffered damages as a result of Exegy terminating the combination agreement on Nov. 7, 2006. "Subject to binding legal agreements, ... PICO and HyperFeed took substantial irrevocable steps to combine HyperFeed's operations with Exegy's, including providing Exegy with valuable confidential and proprietary information," the complaint states.
In the complaint, HyperFeed says it provided Exegy with access to its business relationships with partners and Wall Street customers as well as its technology. HyperFeed's clients included the American Stock Exchange, Chicago Board Options Exchange, Nasdaq and Susquehanna International Group at one point. Assuming the contribution agreement would proceed to closing, "HyperFeed reduced its headcount in operations and development, relying on Exegy's technical resources in that area," states the complaint. HyperFeed also says it has a right to the sales and marketing materials it provided to Exegy when the two entities combined their operations and operated as a unified company. As a result of Exegy terminating the so-called combination agreement, HyperFeed's management and its owner, Pico Holdings, decided to file for Chapter 7 bankruptcy and liquidate the market data company's operations.
As many may recall, Exegy announced a contract to merge with HyperFeed on June 20, 2006 at the SIA Technology Management Show at the Hilton Hotel. At the time, Exegy said it would put the HyperFeed ticker plant technology into the Exegy box. But the contract had an October 21, 2006 contract termination date, says O'Donnell. HyperFeed, a public company, needed approval from the SEC to complete the merger. It didn't have the approval yet. At that point, "We took a fresh look at the transaction," says O'Donnell in the interview with Wall Street & Technology last week. Exegy decided to let the deal lapse, says O'Donnell, who didn't cite specifics.
The question is will Exegy survive a lawsuit filed by HyperFeed Technologies and its owner PICO Holdings and will prospective customers take the risk not knowing how the lawsuit will turn out? "The upshot of it all is will they gain future traction in the marketplace even though there is this lawsuit looming?" asks Tom Price, senior analyst at Tower Group. "I don't know enough about Exegy's balance sheet to say could they survive this," he says. Price points out that other competitors such as BT Radianz and Wombat Financial Software offer low latency solutions and don't have these legal problems. Price adds that in addition to the $30,000 per month that Exegy plans to charge for leasing the box, customers will still have to pay each exchange a fee for receiving its direct feed.
On the other hand, Exegy has a compelling story for brokerage houses and hedge funds that are struggling to keep up with market data rates. The state-of-the art in current software-based ticker plants is single digit latency, says O'Donnell. But this means processing the data over 30 to 40 servers. And it will go up to 80 if market data rates double, says Exegy's CEO. "Users of market data see that just adding more boxes to the problem is not a sustainable solution," says O'Donnell.
Once firms have the box, they could do other complex statistical calculations on the box, such as VWAP and implied volatility, he adds. There is also potential to do smart order routing, as well, says O'Donnell which was one of the ideas put forth by HyperFeed in the releases discussing the merger. O'Donnell believes that customers will want to run the box close to an exchange, at a place like BT Radianz, and put a proprietary trading algorithm on the box. "That will be the fastest path to liquidity," he says. The question is will sell-side firms and hedge funds want to risk the uncertainty of Exegy's pending legal battle. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio