Increasing competition, higher market data volume, the explosion of electronic trading and new regulatory demands are some of the driving forces behind industry changes. Firms are trying to maintain their competitive edge by constantly evolving their trading strategies and increasing the speed of trading by reducing latency down to microseconds. Since so much of the trading process is now performed by black boxes and sophisticated algorithms, Wall Street is becoming extremely dependent on trading systems technology and the infrastructure that supports it.

To gain a competitive edge in the marketplace, portfolio and risk managers must be able to access real-time financial information and utilize technical indicators to buy and sell equities and exotic investments. As new investment products are introduced, the need to obtain an accurate view of a fund’s value and its related risk is significantly increased. These growing business necessities are creating enormous stress on the current computing infrastructures, where highly computational algorithms in mission-critical applications need to scale effectively.

A viable architecture has to include the latest technologies from both network and application domains. It has to be modular in order to provide a manageable path to evolve each component with minimal disruption to the overall system. Therefore, next-generation trading architectures are based on a services framework. Services such as ultra-low latency messaging, latency monitoring, multicast, computing, storage, data and application virtualization, trading resiliency and mobility are all key areas which can be addressed to optimize the competitive trading environment.

The solution to the complex requirements of next-generation trading platforms must be built with a holistic mindset, crossing the boundaries of traditional silos like business and technology or applications and networking.

To achieve this, the following latency reduction technologies can play a vital role in the overall architecture:

• High speed interconnect - InfiniBand or 10 Gbps connectivity for trading clusters (e.g. feed handlers, order management systems, algorithmic trading farms)

• High-speed messaging bus

• Application acceleration via RDMA without application re-coding

• Real-time latency monitoring and redirection of trading traffic to the path with minimum latency

Business resilience has been one main concern of trading firms which dictates 24x7 operations. Solutions in this area range from redundant data centers situated in different geographies and connected to multiple trading venues to virtual trader solutions, offering power traders most of the functionality of a trading floor in a remote location. The financial services industry is one of the most demanding in terms of IT requirements. The industry is experiencing an architectural shift towards Services-Oriented Architecture (SOA), Web services, and virtualization of IT resources. SOA takes advantage of the increase in network speed to enable dynamic binding and virtualization of software components. This allows the creation of new applications without losing the investment in existing systems and infrastructure. The concept has the potential to revolutionize the way integration is done, enabling significant reductions in the complexity and cost of such integration.

Today’s High Level Architecture

Figure 1 depicts the high-level architecture of a trading environment. The ticker plant and the algorithmic trading engines are located in the high performance trading cluster in the firm’s data center or at the exchange. The human traders are located in the end-user applications area. Functionally there are two application components in the enterprise trading environment: publishers and subscribers. The messaging bus provides the communication path between publishers and subscribers.

A trading environment carries pricing information for financial instruments, news, and other value-added information such as analytics. It is unidirectional and very latency sensitive, typically delivered over UDP (User Datagram Protocol) multicast. Market data flows from one or multiple external feeds, coming from market data providers like stock exchanges, data aggregators, and Electronic Communication Networks (ECNs). Each provider has its own market data format. The data is received by feed handlers, specialized applications which normalize and clean the data and then send it to data consumers, such as pricing engines, algorithmic trading applications, or human traders. Sell-side firms also send the market data to their clients, buy-side firms such as mutual funds, hedge funds, and other asset managers. Some buy-side firms may opt to receive direct feeds from the exchanges, further reducing latency.

Industry Trends

Next-generation trading architectures have to respond to increased demands for speed, volume, and efficiency. For example, the volume of options market data is expected to double after the introduction of options penny trading in 2007. There are also regulatory demands for best execution, which require handling price updates at rates that approach one million messages per second. The next-generation trading architecture is based on a services-oriented framework which provides low latency, high performance and increased business agility. This approach provides a conceptual framework and an implementation path based on modularization and minimization of inter-dependencies.

This framework provides firms with a methodology to:

• Wrap processes in Web services

• Evaluate their current state in terms of services

• Prioritize services based on their value to the business

• Evolve the trading platform to the desired state using a modular approach

The high performance trading architecture relies on the following services, as defined by the services architecture framework represented in Figure 2.

Trading Resilience and Mobility

The diagram depicted in Figure 3 outlines an architecture optimized for continuous business operation. The main requirements for achieving trading resilience include:

• Fully scalable and redundant data centers

• Resilient server load balancing and high availability in analytic server farms

• Global site load balancing that provides the capability to continue participating in the market venues of closest proximity

A highly-available data center environment is capable of sustaining multiple failures (i.e., links, switches, modules), which provides non-disruptive access to trading systems for traders and market data feeds. Fine-tuned routing protocol timers, in conjunction with optimized failover mechanisms provide sub-second recovery from any failure.

The high-speed interconnect between data centers can be DWDM/dark fiber, which provides business continuance in case of a site failure. Each site is 100km-200km apart, allowing synchronous data replication. Usually the distance for synchronous data replication is 100km, but with Read/Write Acceleration it can stretch to 200km. A tertiary data center can be greater than 200km away, which would replicate data in an asynchronous fashion.

A robust server load balancing solution is required for order routing, algorithmic trading, risk analysis, and other services to offer continuous access to clients regardless of a server failure. Multiple servers encompass a “farm” and these hosts can be added/removed without disruption since they reside behind a virtual IP (VIP) address which is announced in the network.

A global site load balancing solution provides remote traders the resiliency to access trading environments which are closer to their location. This minimizes latency for execution times since requests are always routed to the nearest venue.

Summary

The high-speed arms race on Wall Street is causing the leading firms to re-evaluate their trading architectures and optimize them for low latency and high performance while ensuring pervasive security and quality of service. Skyrocketing message rates and regulatory changes such as Regulation National Market System (Reg NMS) will continue to push trading floors to their limits. As the typical trader now requires mobility, large compute clusters, real-time collaboration tools and continuous system availability, a resilient, service-oriented trading architecture is mandatory in order to survive in a global market.

Dave Malik is Technical Leader, Advanced Services at Cisco; e-mail: dmalik@cisco.com; web: www.cisco.com/go/datacenter.

To download the comprehensive whitepaper on Trading Floor Architectures www.cisco.com/offer/datacenter/wp. To request a meeting with a Cisco engineer to discuss these technologies further www.cisco.com/offer/datacenter/wall07.