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London - 1500BST, 12 May 2008 Most leading investment banks expect to invest more money in reducing the latency of their trading systems this year. All the finance IT professionals polled by COLT Telecom recently rated latency as either critical' or 'very important'. Ninety per cent said they expect to invest in reducing it further in 2008. And all expressed concern about 'distance latency'.
Distance hits trades
A poll of thirty leading investment banks by COLT Telecom has revealed although the credit crunch is likely to impact front office spending this year, the majority of firms still expect to invest in reducing the latency of their trading systems. All of the Finance IT professionals who took part in the survey, conducted at a recent COLT customer event in London, rated latency as either ‘critical’ or ‘very important’ to successful electronic trading of securities. Ninety per cent said they expect to invest in reducing it in 2008.
Electronic trading depends heavily on speed of execution and availability of market data for success and even a millisecond’s delay can potentially impact margins and profitability. All respondents who took part in the poll said the physical proximity of their trading systems to the stock exchange’s systems was either ‘critical’ or ‘important’ in lowering latency.
“Latency is still a major issue for a large bracket of trading firms,” Ian Jack of COLT’s Financial Services team told our reporter. “Market makers, firms pursuing arbitrage strategies and investment banks offering direct market access services to their customers continue to seek latency improvements wherever possible. It is hard to say at what level latency becomes unacceptable as it is all relative - as long as one firm has an edge, its performance will automatically become the industry benchmark.”
“In terms of how latency can be reduced, physical proximity and network performance will play an important role," Jack continued. "Modern fibre optic networks are becoming increasingly sophisticated but at the end of the day, physical distance causes an unavoidable level of delay – every 200km of fibre represents 1ms of latency. For this reason, we expect to see more firms physically moving their trading systems closer to the markets in the next 12 months.”
Bob McDowall of Tower Group added, "Spending on front-office trading systems may plateau this year due to the continuing absence of liquidity and credit. As the COLT poll has indicated, we see low latency services as one area that trading firms continue to focus on.”
More than half of the survey respondents said that the credit crisis is likely to have an impact on front office spend in 2008 within their organisation.
COLT provides Proximity Hosting, where trading systems are housed very close to stock exchange ordering systems, using its network of 18 data centres across Europe. It anticipates increasing the number of proximity locations in 2008. More from www.colt.net
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