From the January 01, 2007 issue of Futures Magazine • Subscribe!

Quotes and velocity

The debate about quote traffic has ebbed and flowed for years, but huge leaps in capacity have banished the days when exchanges would allot bandwidth to members and charge them for overage. Thanks to cluster technology, clusters of new hardware easily synchronize into one entity, making it easier to expand and, if need be, contract capacity to meet needs. This has made it possible for exchanges to promote liquidity without worrying about flooding their systems.

For example, in January 2005, Eurex’s system was handling about 10 million quotes per day. Then it launched its continuous quote market-maker program and the average daily number of quotes has surged — first to 100 million a day by December 2005 and now to roughly 150 million per day.

DAX market makers, for example, are obligated to quote strikes on seven options in every series two years into the future and those strikes change as the markets move. Still, assuming a flat-line market, you’re talking about constant quotes 85% of the trading day on 180 series in both directions, or 360 per strike.

In November the exchange will release its new trade-matching system, followed by an upgrade in hardware from Alpha to Itanium.

If those names mean nothing, get used to it. A whole range of new technologies are sweeping into derivatives processors. Some, like Field Programmable Gate Array (FPGA) chips have been around for decades but have only now evolved to the point of being useful to traders.

London-based Detica is using PFGA chips to accelerate software by rewriting functionality from ‘high-level’ tools such as Excel, to low-level ‘bit code,’ which can then be executed on PFGA chips instead of on a central processing unit. In that example, a price analyzing system that accesses data stored in Excel will instead briefly load those libraries onto the chips in bit code seconds before needed, only to swap them back out to Excel seconds later.

The result is 40 times faster than current systems deliver, and you can bet the techies at Actant and other companies are working on ways to fit that into their systems while exchanges are surely using tomorrow’s technology to design today’s products.

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