By: Ray Pellecchia
File Under: NYSE Euronext
From Colin Clark, Senior Vice President of Strategic Analysis and Market Data:
Consolidated market data – the trades and “quotes” (the current best bid and offer) from the various stock exchanges combined into a single stream of data – is delivered to the public more slowly than the individual direct feeds from the exchanges of their own quotes and trades, because the process of consolidation takes time.
But there’s good news on this front: following significant investment by the exchanges, consolidated feeds are now faster than ever, and getting faster still. Latency of consolidated data is expected to be less than one millisecond by the middle of next year, compared with about one second just three years ago.
All stoked about that?
OK, I know, data latency is not the sexiest subject in finance. But stay with me for a minute, this stuff is actually important.
We’re also increasing transparency around the speed of consolidated data, so as to increase understanding and eliminate confusion about this important but often-overlooked aspect of our equities markets.
Before getting into how these changes are taking place, some quick background:
Most investors are familiar with basic price information used for trading stocks – the “ticker” of last-sale prices and the quotation of the current best bid and offer. This type of data is ubiquitous, appearing in various forms on TV and computer screens, newspaper stock tables, and electronic tickers commonly seen in many businesses and public places.
Where does this data come from? The Consolidated Tape Association (CTA) is at the center of the process of producing it. The CTA oversees the dissemination of real-time trade and quote information in securities listed on the New York Stock Exchange, NYSE Arca and NYSE Amex. The New York Stock Exchange and NYSE Amex act as the administrators for the CTA for NYSE- and NYSE Amex-listed issues, respectively. Securities Industry Automation Corp. (SIAC), a subsidiary of NYSE Euronext, acts as the “securities information processor” (SIP), which means that SIAC maintains the systems that consolidate the data from the various markets.
As the SIP, SIAC produces and disseminates single, consolidated streams containing quotes and trade prices from every market, and calculates the current consolidated and individual exchange high, low and last prices and the National Best Bid Offer (NBBO), which is the highest bid and lowest offer on any exchange. This process includes consolidating the information from 14 exchanges and market centers, calculating the high, low, last and NBBO from that information, storing all transaction data, creating messages for the data feeds, and transmitting hundreds of millions of messages worldwide to various distribution channels, including data vendors, brokers, news media, and the Internet. This is all done in a matter of milliseconds, or thousandths of a second.
It’s also important to point out there are two aspects of speed – order acknowledgment latency and market data latency – and the former usually is the main focus. Order acknowledgment latency is the round-trip time it takes to process and acknowledge, fill or cancel an order. Market data latency is the time it takes to process and disseminate quotes and trades via the market data streams.
Getting Ahead of Message Traffic Growth
OK, you waded through that, here’s where the story gets more exciting. Or at least, less boring.
In recent years, the explosion in the number of quotes, trades and even trading venues made it a challenge for the CTA exchanges to keep the consolidated feeds as current as possible. Peak message traffic on the Consolidated Quotation System increased to 298,500 messages per second in 2010, or nearly triple the 2009 peak of 104,300 messages per second. Traffic on the Consolidated Tape System (the stream of the most recent trade prices) more than doubled in the same period, to 49,600 messages per second from 19,400.
Against that backdrop, the CTA exchanges have been investing in hardware – new computer servers and networks – with greater capacity for throughput, and we’re continuing to step up that investment into 2011. The migration of SIAC’s servers to a new industry-leading data center in Mahwah, N.J. last August also was a powerful contributor to reducing latency.
Average Latency of Consolidated Market Data Feeds
Data for December through June are projected.
Latency is measured from the time messages are received by the SIP to when the results are sent out.
Advances in Capacity Planning and Transparency
Not all the enhancements are in hardware. With trading and data systems continuing to get faster, the CTA exchanges are also taking a more granular approach to planning future system capacity. In the past, we estimated our future capacity needs based on message peaks over a five-second period of time; starting on 1 January 2011, we’ll begin using a one-second interval, which more exactly reflects actual system utilization during bursts of traffic.
This blog post – scintillating though the subject matter is – represents only the beginning of much greater transparency from the CTA exchanges on the subject. We’re reporting our latency statistics on a monthly basis to the Financial Information Forum for public posting, and to the FISD (the Financial Information Services Division of the Software and Information Industry Association) and as part of the capacity planning process notices to the CTA data recipients. Our projections for message traffic are posted on our data website, and other communications are in the planning stages.
As you can see, we’ve been working for some time and have made a great deal of progress on cutting down the latency of consolidated feeds, and we’ll keep at it. We’ll also keep everyone posted on our progress and performance.