Asia's Financial Markets Driving Low-Latency Demand

CEN Feature (Jun 23 2011)

1. 

   Network operators' discussions about low-latency connectivity used to be primarily focused on key North American, European, or trans-Atlantic routes, but lately, Asia has become a tempting target for emerging market opportunities. Historically, principal customers for low-latency WDM or Ethernet connections have been within the financial industry and key routes have been centered on major financial centers in the West, such as New York-to-Chicago, London-to-Frankfurt, and New York-to-London (see Carrier Ethernet News article: http://www.carrierethernetnews.com/articles/48900/low-latency-connectivity-is-a-hot-new-ethernet-app/).

   So, while Western financial markets more quickly adopted technology needed for high-speed algorithmic trading, Asian financial markets are now looking to adopt low-latency connectivity and Carrier Ethernet to enable high-speed trading activities on par with the world's major financial centers. One network operator watching developments in this area closely is NTT Communications, a company that — among other things — owns the lowest-latency trans-Pacific undersea cable.

   This week, NTT Americas vice president of Network Products & Solutions Fang Wu discussed the company’s low-latency offering, branded as Arcstar, and provided insight about how low-latency opportunities are shaping up in Asia.

   Wu explained that low-latency connections typically exist between data centers adjacent to financial exchanges to support computerized, low-latency trading algorithms. These formulas are written to detect minute differences in a stock’s price on global exchanges and immediately execute trades to leverage the price difference. Because every microsecond counts, a low-latency connection is critical to support this type of computerized trading. The latency of a connection depends on several factors, including the physical length of a link, the number of hops, and the equipment deployed to support a particular connection, Wu said.

   NTT’s low-latency Arcstar service is what Wu called an "Ethernet leased-line" offering. “We put an Ethernet frame onto a SONET frame so our customers get ‘bits-in, bits-out,’” Wu explained. In a packet network, bits can get dropped or go into a buffer and that isn’t acceptable for low-latency financial applications, he said.

   When asked about Carrier Ethernet solutions for Asia's financial market, Overture Networks' director of Marketing Mark Durrett notes that "there is obviously a growing, significant need throughout Asia's financial markets to upgrade equipment in support of high-speed trading. We clearly see the implementation of Carrier Ethernet as a key component to address the specific requirements of this highly competitive industry."

   NTT offers service level agreements for its Arcstar offering that are tailored to financial industry customers. For example, an Arcstar SLA can specify that bits will not be heavily buffered. A customer might also request a guarantee that a connection will not be rerouted or that NTT will give advance notice of planned reroutes so that algorithms can be adjusted to appropriate latency level.

   A typical low-latency customer uses a 100 Mb/s connection to each exchange, Wu said. If several exchanges are involved, a customer can easily require 1 Gb/s of bandwidth in total.

   NTT’s low-latency, trans-Pacific cable is a key asset in supporting financial industry customers and one that should be an ongoing differentiator moving forward. As Wu points out, “The investment to deploy a submarine cable is in the hundreds of millions of dollars,” making such an investment one of the most formidable barriers to entering this market.

   NTT's assets also include connectivity to the stock exchange in Tokyo and some other markets, as well as a critical connection to the data center supporting the Chicago Mercantile Exchange (CME), which provides 24-hour market data.

   “There is a lot of demand from a connection perspective between Chicago and Asia,” Wu said. During hours when Asian markets are up and running, traders use CME data to support high-speed algorithmic trades.

   Not every Asian stock market can support high-speed algorithmic trading today. “Many exchanges are upgrading their trading engines,” Wu explained. “Without upgrading the technology, they simply can’t do high-speed trading.”

   NTT is closely monitoring market demand in Asia and the progress of upgrade activities. “Many of our high-frequency trading customers are not familiar with Asia and need assistance to set up operations in this emerging market,” Wu said. By positioning itself as an Asian specialist for customers in the U.S. and elsewhere, NTT appears well positioned to garner a large part of the Asian low-latency connectivity business — and providing Carrier Ethernet will be essential in supporting that business.

   Bookmark or Share this article

Login to comment.