The amount of data moving through financial markets is increasing dramatically—the number of trades flowing through the NYSE is growing exponentially every few months and AITE Group has said trading firms will be spending billions on information infrastructure to keep up1.. For investment banks, when it comes to the delivery of market data and trade-related messages, late messages equal lost money. The increasing volume of orders, pervasiveness of algorithmic trading systems and customer demand for lower latency are outpacing the software they require.

Latency and throughput are two sides of the same coin. Substantial increases in throughput put so much strain on underlying networks and software that latency goes up, while an intense focus on minimizing latency throttles throughput. One classic example is Nagle’s algorithm for optimizing TCP (transmission control protocol) bandwidth: leave it on to batch more packets into a single transmission for better throughput, or turn it off to transmit each message individually with lower latency.

Wherever performance is critical, hardware solutions become the norm. The Internet wouldn’t work without high-capacity routers and switches, and dedicated graphics hardware is the foundation of the gaming industry. We’re at the same crossroads that the networking industry was at in the 80s when routing was performed in software until Cisco changed the game. With financial institutions requiring delivery of millions of messages a second with latency tolerances of less than 1 millisecond, and sometimes less than 100 microseconds, hardware-based information infrastructure is becoming a necessity. We’re not talking about accelerating software or bundling software with a server, but embedding the data path in silicon to eliminate the bottlenecks caused by software.

Hardware-based middleware improves information infrastructure in six areas:

1. Performance. By eliminating the interruptions and inconsistencies of OS tasks, application interfaces, and storage reads/writes, hardware can handle millions of messages per second with latency under 100 microseconds.

2. Reliability. Firms may occasionally have to deal with multicast storms—one slow consumer kicks things off and by the time the storm has been diagnosed, the damage is done. Hardware-based routing lets consumers subscribe to only the data they’re interested in, eliminating the inefficiency and risk of having millions of packets flowing over the network to all consumers. Just as impressive is hardware’s ability to support truly guaranteed messaging—for applications like order processing and trade execution—at a rate of 100,000 messages per second.

3. Availability. Most reliable messaging software can’t effectively recover from a catastrophic failure, but a pair of hardware devices can shadow each other and offer recovery and full client connectivity in just seconds.

4. Predictability. Software is susceptible to latency under load— usually exhibiting outliers of hundreds of milliseconds, and 5- to 10-second delays occur frequently. Since hardware isn’t subject to OS processes or context switching it can deliver the performance described above even at peak volume with outliers of no more then 50-100 microseconds.

5. Flexibility. Hardware can accelerate the deployment of services by supporting many messaging requirements on one platform—everything from high fan-out messaging for market data distribution to guaranteed messaging for order execution, along with intelligent routing and transformation for applications like CEP (Complex Event Processing), fraud detection, and more.

6. Cost and complexity. Hardware-based middleware can reduce the datacenter footprint by 10:1 or more. Less servers, software licenses, maintenance, power and cooling—each reduction contributes to a less complicated and costly infrastructure.

On any dimension, hardware has compelling advantages over software. When you consider the total package, it’s obvious that the time has come to actively consider migrating the financial market’s information infrastructure to hardware.

Ralph Frankel is CTO of Solace Systems, 613-271-1010
email: ralph.frankel@solacesystems.com
web: www.solacesystems.com

1. AITE Group Report, January, 2008 – “High-Performance Trading Infrastructure: Cost, Opportunities and Challenges”www.aitegroup.com/reports/200801021.php