Just when you think you know what is coming, the joker pops up to toss it all in the air. The TradeTech Architecture conference for data technology began with a bang. We already knew, of course, that energy costs were skyrocketing, powered by the explosion in data volumes and technology. Virtualisation, while improving server utilization, was also encouraging demand. Even lower power, higher performance chips may just raise the intensity of order flow. While recession had convinced us that energy was tomorrow's problem, this TradeTech conference reminded us that that future had arrived. Data centre growth is already unsustainable, as illustrated in the unlikely city of Norwich where the energy battle between machines and people has apparently begun. Without new power generation capacity, it appears they can build no more homes. One rack is the equivalent of two domestic ovens which we then put in a 'fridge of air conditioning, a nice image to take home.
However, help is on its way with adiabatic cooling systems, containerised computer rooms, deep sea power generation, or the amazing solar towers of sunny Spain. These all provide hope, unlike the lumbering windmills off the Norfolk coast that in deep midwinter become becalmed.
Next we were warned of the dangers of deep cloud approaching. Solar towers beware! It seems one virtual games world went from zero to 250k users in 2 days on a cloud. With 6.8 billion retail punters in the world is this the shape of tomorrow's exchanges? One thing holding back cloud computing is the spaghetti of complexity of current network architectures. Could the one-hop LAN integrate the new cyber cities into low latency liquidity pools beyond our dreams? Apparently people have it already working in the labs.
Meanwhile, back in the real world we stared into the growing 'chasm' between the front and back office. As latencies plummet into nanoseconds with ever-shorter algorithmic half-lives in the breathless, cross-asset world of the trading rooms, in the middle and back offices they are still struggling to escape their walled silos of dreaded spreadsheets and batch update cycles. With echoes of the earlier energy or cloud scenarios, we were reminded that we must move processes to the data not data to the process. There is just too much data to move about and a Babel of definitions to contend with. This message clearly reverberated through the day in so many ways: we need to rethink our risk cultures and focus much, much more on the data, standards and just-in-time, but good-enough processing strategies.
Many deep discussions about data feed latencies, microbursts and jitter then followed, but these big picture issues of energy, cloud vs. complexity and the inertia of data set the scene and were never far below the surface of debate.
There was a good discussion on Infiniband vs.10gig Ethernet. The IB fans tried to dispel the myth that their technology was more expensive. Yet everyone agreed that RDMA was the way forward, spreading out from the exchanges to the colo centres as well, ratcheting up the arms race. Speakers confirmed the latest exchange technology in Asia had brought response times below 100 microseconds, with 50% per annum reductions still to come. Another surge in volumes is clearly approaching along with those deep clouds.
Bleeding edge design appeared to be moving time-stamps and latency monitors into the network cards, and more software intelligence upstream into the routers to improve trading decisions. Meanwhile, process flows continue to be stripped down to essentials, driven by OS bypass strategies and IPC over shared memory architectures.
There appears to be a new, rich harvest of analytical models sprouting up everywhere as well, analysing what is happening from different perspectives. The robotraders seem to be increasingly self-conscious. While everyone talks about going with the flow, brokers at least are trying to be much more aware of what is happening around them, as some off-stage discussions confirmed. At least some of the lessons of last year's flash crash appear to be sinking in.
There was some good debate over the meaning of fairness and transparency. Someone asked whether MiFID II would make minimum resting times for orders obligatory? Instead of the usual cries of horror, however, the assembled delegates seemed ready at least to debate the issue. Unreachable quotes are clearly beginning to get irritating and one person referred to them as 'junk', although there seemed to be sympathy as well for market makers who need to be able to pull their quotes.
Meaningful time stamps were another heartfelt call from traders struggling to demonstrate best execution, and several speakers wished FIX well with their endeavours to standardize these things. I just did not sense the feelings of urgency that might actually make it happen.
The only way to guarantee predictable response times, of course, was massive over-provisioning of infrastructure capacity with one MTF claiming it generously aimed to support the whole European market. Nice, if you can afford it. There was more consensus around the increasingly bursty nature of the traffic, confirming that feedback loops still work. Clearly the trade winds are blowing the focus of liquidity from one venue to another making load balancing strategies and flow controls highly important.
Should the markets provide more latency data? Here the jury still seems to be out. The technology vendors clearly seem to think they should. Some participant interest quickly fades, however, if there is any chance they might have to pay for it. We'll soon find out since some platforms are busy investing in these things. However, this is not the stuff of passionate debate. Meanwhile, the growing activity off exchange does still stir the blood and there was some satisfaction at the conference that competition was indeed taking hold.
There was some insightful discussion around lit and dark pools and how trading strategies incorporate them, particularly in the current environment of low liquidity. One trader expressed regret that some dark pools are quite slow to acknowledge order updates or cancels. This was thought to be constraining liquidity in the lit markets.
The clear message from all of this was the growing complexity of the markets, the rising tide of message volumes, and their weird behaviours, which in Europe are about to lurch into the electronic trading of equity derivatives and other cross asset plays. Every day the challenges multiply. There's no light yet at the end of this tunnel.
Still the speakers were determined to battle on. One excellent case study described one firm's attempts over many years to measure nearly everything and keep burgeoning volumes of metadata and business intelligence. It is all too easy to fight fires from one day to the next and much more difficult to capture the big picture from the mass of detail. It's heartening to hear that some firms are seriously trying to do it with system maps to translate the virtual flows into physical components and performance characteristics.
Another interesting case study looked at the technology of firewalls and the impact these unsung security heroes can have on latency and jitter. Having suffered with firewall issues a few years back myself, and having heard of some serious cyber attacks on exchanges last year as well, I found this analysis particularly resonant. This is not something to be simply delegated to the infrastructure team and new technologies here should make life both easier and safer.
The conference ended with a moving description of the need for consolidated audit trails. Scarcely a gripping theme, and often the victim of the budget axe, audit trails are another one of those foundation technologies that are taken for granted yet support the whole infrastructure. If the torrent of regulation makes regulatory arbitrage ever easier, then the boring business of audit trails could prove to be more than exciting for financial directors. US regulations will mandate new investment and potentially it can give every trading firm deep insight into their business and risk exposures.
There was further evidence here that news flow algorithms are taking hold with increasing numbers of firms investigating their potential and even the regulators starting to get interested to track insider information or front running behaviours. Will wonders never cease!
There were inevitably parallel sessions I couldn't attend, so others may have different memories from mine. For me, it had been a good launch for TradeTech Architecture Data Technology. The mouthful of a conference title turned into a tasty morsel to think about all through the coming year. From the big picture themes of energy, complexity, data and latency to the detailed issues of performance monitoring, cyber security and audit, the speakers at this year's conference set the agenda for the coming months which are likely to be quite exciting indeed.