Competition among broker-dealers offering low-latency high frequency trading services continues to ratchet up as Morgan Stanley has released an updated and faster version of its sponsored-access risk checking software.
The software, known as Speedway, is similar to the sponsored access offerings of certain clearing firms and FTEN, which Nasdaq OMX bought six months ago. It consists of servers co-located at various exchanges, offering high-speed direct market access to Morgan Stanley’s latency-sensitive customers. It is characterized as a "thin server," according to Ari Kaplan, global head of quantitative client business for Morgan Stanley’s electronic trading group. While it does perform all the necessary risk checks, it does not sacrifice on speed.
"For some trading styles, if you’re not the first, second or third in an exchange order book when the price moves, you might not get an execution," he said, pointing to the advantages of the newest version of Speedway.
When Speedway was first released in 2006 it performed risk checks in about a hundred microseconds, fine for the time. However, in order to meet today’s low-latency demand, Morgan Stanley goosed up the speed in its latest iteration, version 3.0, to the two microsecond range. This was done through code optimizations and hardware upgrades, Kaplan said.
Speedway uses Morgan Stanley’s proprietary technology.
Morgan Stanley runs risk checks on Speedway that are similar to what it does when orders are sent through the broker’s infrastructure, such as with direct market access flow.
While the speed checks are an improvement and hyper-fast, at least one high-frequency trader didn’t think the two microsecond time frame was a big differentiator for the big broker’s offering. He told Traders Magazine that he has had conversations with other bulge bracket firms who are also touting similar speeds for their risk checking software. Given these conversations, he expects that the two microsecond time frame will quickly become the industry speed standard.
"The speed technology game is becoming a commodity—everyone knows how to do it and two microseconds might not make any broker stand out from another,’ he said.
However, he did say these hyper-fast risk checks would be useful to smaller low-latency trading firms that have used either vendors or brokers for their sponsored access needs.
Kaplan said Speedway will span the globe-servers are already co-located at all major U.S. exchanges and set to go online in Europe by the end of May and in the Far East by the end of the second quarter.
The speedier risk check protocol comes as the Securities and Exchange Commission prepares to enact its "naked access" rule, 15c3-5, which mandates brokers will have to provide risk checks for orders before they are entered into the market. The SEC voted unanimously to adopt Rule 15c3-5 last November and it goes into effect July 14.
Kaplan said the system is flexible in that software changes to Speedway can be done directly on traditional server technology, unlike other systems that use field programmable gate array—FPGA—devices. FPGA is a programmable hardware technology that allows for software designs to be burned into integrated circuits but does not allow for modifications post burn-in. Speedway’s platform allows for new software to be uploaded quickly and directly by the broker without replacing hardware, a time consuming and expensive process.
"What we did was go with a traditional host, so now we can integrate changes to Speedway easier and faster, not to mention at a lower cost," Kaplan said.
