WFE MIT Forum

Comparisons of ATS systems with those of traditional Stock Exchanges

Trading Technology November 2009

AGENDA
The new exchange participants Architectural Differences ATS system architecture Challenges to the industry

1. The participants

Industry Trends exchange participants

Global brokers
Simple connections, FIX Routing networks Co-location Cheapness Product expansion
Commodities, Derivative, ETFs.

Local Brokers

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No changes Cost reduction Simplicity

Cheap Fast High volume/low latency Co-location Simple market structures Out of hours trading Not afraid of technology!

Algo Traders:

Industry Trends effect on execution centres

In 2003 trend was
BCR centric resilience and recovery key High degree of functionality derivatives, ETFs etc Multi-asset/functionality systems Scalability Moores law kept up with increase in business

In 2009 trend is
Low latency Performance High order to trade ratio Competitive costs low overheads

1. Architectural differences

Industry Trends Architectural Types

TT has identified four major types of architecture for exchange trading systems. Type 1. Mainframe/minicomputer centralised trading system 2. Distributed multi-server resilient system 3. Simple (simplex) trading system with few or no resiliency components 4. Web/windows component systems These are generally in order of chronological development There is no judgment as to which is better or worse The packages such as CLICK, X-STREAM and SAXESS are type 2 The ATSs tend to be a type 3, which has emerged as the highest performance system due to its simplicity
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Typical Type 2 system architecture

Typical ATS system architecture

Speed = simplicity...

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Industry Trends Trading systems

ATS model simple systems Designed for speed first, resiliency second Sacrifice resiliency components for speed Reliant on more stable platforms
HP x86 Blade servers Clustering Disk RAID/SAN resiliency

Use of Multicast core to architecture Use of native protocols plus ITCH OUCH Standardised on
C++, RedHat Linux, Open source components, MYSQL or Oracle

Offer Co-location

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Trading system latency

Note these are published latency figures Beware lies, damned lies and Exchange statistics! Beware also that all technology providers will claim sub nano-second latency... ASX is spending money on upgrading ITS BATS and Chi-X will not be standing still on latency Will Latency matter once all venues are under 1ms?
Equity Trading System Latency (ms) - 2009
25.0 20.0 15.0 10.0 5.0 0.0

) ) ) ) ) y) c t) ss tra XT ary ar e t e tum e t l r k e n e e p ri (X ri lic ua ad Ex G op (C rop r ( tr (Q B e p p X ( d ( D E X ra AS i-X LS TS TM (T h A a C B ph Al

6. Effect on the industry?

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List of top 25 Exchanges*/ATSs using ATS systems

Rank
1 2 3 4 5 6 7

Exchange/ATS
NASDAQ OMX (US) NYSE Euronext (US) BATS (US) London Stock Exchange Tokyo Stock Exchange Deutsche Borse NYSE Euronext (FR)

Value Traded (2008) $m

36,446,548.50 33,638,937.00 7,800,000.00 6,473,611.60 5,586,327.10 4,724,486.10 4,454,415.20

Trading System
In-house(ex ATS) In-house(ex ATS) In-house(ex ATS) In-house / outsource In-house / outsource In-house In-house (ex-ATS)

Use of consultant / SI

Accenture Fujitsu Accenture

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9 10

DirectEdge (US)
Shanghai Stock Exchange BME (Spain)

3,800,000.00
2,586,680.60 2,438,646.50

In-house (ATS)
Package (Xetra) In-house Accenture BME Consulting Compaq Accenture IBM OMX OMX

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12 13 14 15 16 17 18 19 20 21 22 23 24 25

Toronto Stock Exchange

HK Exchanges Borsa Italiana Swiss Stock Exchange Korean Stock Exchange Stockholmbrsen Australian Stock Exchange Shenzhen Stock Exchange Taiwan Stock Exchange BM&FBOVESPA National Stock Exchange of India American Stock Exchange Tadawul (Saudi Arabia) Oslo Brs JSE Securities Exchange

1,736,084.90
1,629,259.90 1,526,237.20 1,509,899.60 1,458,516.60 1,354,243.70 1,258,769.00 1,241,747.40 837,774.60 750,250.50 740,901.50 561,602.50 523,450.00 458,078.40 400,758.40

In-house
In-house ASP (LSE) Package (OMX) In-house In-house (OMX) Package (OMX) In-house In-house Package (AEMS) Package (TCAM) In-house Package (OMX) ASP (OMX) ASP (LSE) AEMS Tata Consulting SIAC OMX OMX Accenture

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*WFE Statistics 2008 (with ATSs researched independently)

Industry Trends effect on execution centres

Added together, 86% of business in the top 25 exchanges goes through an ECN-style system

Traiditional SE systems ECN system

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Industry Trends Effect on execution centres

In a theoretical world, and with routing, with all exchanges offerings being equal, market share will tend towards 25% (if there are four participants)

Starbucks comparison Thus the market will become saturated...

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Industry Trends Business Strategy

Saturated market competition mode is thus Minimal overheads Maximum automation Maximum business throughput Possible cross-subsidy of main business streams (e.g. listings and market data to subsidise trading) IT a core role Needs to be minimal

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6. Conclusions

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Summary future state architecture?

Has the time between trading system redevelopment shrunk?
Used to be 10 years

Designed for speed first, resiliency second Fewer resiliency components be brave! Use of Multicast core to architecture Use of native protocols plus ITCH OUCH Standardised on
C++, RedHat Linux, Open source components, MYSQL or Oracle

Offer Co-location

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