Thursday, August 27, 2009

"Arms" Race Intensifies for the World's Stock Exchanges

The world's stock exchanges -- 161 in all -- are in a fierce battle to win and keep clients by delivering what customers want most: the fastest, most secure and highest reliability trading possible. This has led to a technology "arms race" among the exchanges which are using computerized algorithms to bundle hundreds of thousands of stocks into single, split-second transactions. Speed, or "low-latency," is everything for these exchanges. A fraction of a second can mean mega gains or losses to investors. Transactions that once took minutes and even seconds to complete are now processed in thousandths and millionths of a second, with the fastest trading engines reaping the biggest benefits. However, for exchanges who lose the latency race, failure can be disastrous. The London Stock Exchange learned that last September when a much-publicized glitch in its Windows-based system shut down trading for a full seven hours, leading to enormous losses.

Deutsche Borse, which manages the International Securities Exchange in New York and the Eurex and Xetra exchanges in Europe, has upped the ante in the latency arms race by announcing that it will begin replacing older applications with a new trading infrastructure based on Linux and IBM's low latency middleware technology. The move exemplifies the increasingly competitive nature of the world's stock exchanges to prosper through speed enabled by cutting-edge technology.

Among other benefits, Deutsche Borse will gain flexibility in upgrading applications when they need to, without being tied to any single vendor's code, licensing and support terms. It also gives them bragging rights to one of the fastest transaction speeds on the planet -- the ability to easily execute more than a million trades per second, dwarfing even the mighty NY Stock Exchange.

The dynamics of the world's exchanges and their IT infrastructures is fast-moving and fascinating. Currently, more than two dozen exchanges are actively evaluating new systems to support faster trading. Some of those, like the Mexican and Korean exchanges, are looking at AIX as the backbone because of its robustness. But the vast majority are leaning towards Linux for its performance and stability. These exchanges are investing in systems that will be in place for at least the next decade. But unlike the past, exchanges now need the flexibility to adapt continuously to the ever increasing need for higher throughput and the constant drive towards zero latency. Basing their new systems on Linux, distributed commodity hardware and IBM's low latency messaging provides them the best base to meet those challenges.

Special to the IBM Software News blog by Paul Michaud, Global Financial Markets Industry Architect, IBM Software Group.

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