Algo Technologies has launched its core matching engine, claiming it’s the fastest available on the market, and formed a joint venture company dedicated to low latency connectivity just a month after its inception.
The company’s matching engine for exchanges and multilateral trading facilities (MTFs), Algo M2, has an external round-trip latency of 16 microseconds measured from customers sending orders and receiving an acknowledgement of trades. According to latency measurement specialist CorvilNet, which made the measurement, this puts Algo M2 ahead of competitive platforms, with Nasdaq OMX Inet technology averaging round-trip latency of 250 microseconds, and platforms used by Bats Europe and Chi-X Europe averaging 270 microseconds and 400 microseconds, respectively.
Hirander Misra, co-founder and CEO of Algo Technologies, who was until recently COO at Chi-X Europe, reckons “Many legacy exchange systems are up to 20 years old, while most of the fastest trading engines date back from design principles introduced in electronic communication networks [(ECNS)] in the US well over 10 years ago. This is no longer about slicing performance. We have taken a fundamentally new approach to matching engine construction and built a new trading system from first principles to put an end to the latency debate.”
Misra says that while most exchanges and MTFs have tens or even hundreds of server cabinets supporting their trading systems, Algo M2 requires less than two cabinets. The hardware is based on optimised commodity products – Misra won’t say which, but he reckons Intel has the best chips on the market – with software written in C++ running on the Linux operating system.
With such an apparent discrepancy in speed between Algo M2 and other matching engines, it would be easy to classify M2’s performance as a one-off experience in the lab; the others, after all, are operating in production environments.
But Misra counters: “Technology has advanced and we have leveraged that. We have simulated live trading and have sustained 300,000 messages per second across multiple stocks and client connections. By comparison, the market in Europe across all exchanges and MTFs works at about 75,000 messages per second and the US market at 250,000 messages per second. This technology can work in the field and I am confident it will still be working at 16 microseconds in a year’s time. It already has lots of functionality, but more can be built in without making an impact on speed.”
Early interest in Algo M2 is likely to come from European exchanges, and Algo Technologies hopes to reveal its first exchange customer in early June. Set up and beta testing will take about six months with go-live in a total of nine months. A second customer, which has completed due diligence and is moving into commercial discussion with the company, is also expected to come on board this year, followed by a further three customers, among them an investment bank, next year.
“Algo M2 is our flagship product. We are talking about it to a range of exchanges, broker dealers and inter-dealer brokers. Our latency numbers are unbelievable and we are independent of any of the exchanges, which is why we see a gap in the market for Algo M2,” says Misra.
Algo M2 will be available under licence from May 24, when Algo Technologies introduces its global exchange services business, essentially a wrap-around for deployment, support and maintenance services. But unlike technology providers linked to exchanges, which provide a black box of content and software maintenance and consultancy options, Algo Technologies will provide full open access to the code across all components deployed.
According to Alexei Lebedev, co-founder of Algo Technologies and chief architect of Algo M2, “This will ensure that users can avoid expensive software support contracts and have the option to handle their own platform maintenance and development through initial training and ongoing support.”
Misra adds: “We can provide trading technology at a tiny fraction of the cost of other providers.” He cites the Turquoise trading platform, which was developed by Cinnober at a cost of £3.6 million, but which he reckons costs about £6 million a year to run including software and support.
Looking forward, Algo Technologies expects to extend Algo M2 beyond equities and exchange-traded funds into other asset classes that would benefit from high speed and throughput, such as options.
As well as releasing Algo M2, Algo Technologies has formed a 50:50 joint partnership with FibreSpan. Called AlgoSpan, the company aims to offer the shortest path network for traders linking to US and European exchanges. FibreSpan, a DTI licensed and Ofcom regulated dark fibre and ultra-high bandwidth network services specialist, has typically worked in the media sector, but as part of AlgoSpan will benefit from a move into the financial services sector.
Coupling FibreSpan’s capabilities and Algo Technologies’ expertise in trading technology services, such as low-latency market data, direct market access and smart order routing, AlgoSpan will reduce transaction latency. Fast fibre connectivity and collocation are already available in Europe and the US – Asia in on the roadmap for 2011 – along with fibre to the door point-to-point connectivity from customer premises to exchange data centres.
AlgoSpan promises premium products that are cheaper than those in the market. Misra, this time wearing the hat of director at AlgoSpan, says: “We are very disruptive in this space as we have no legacy networks and we do not have a big structure to support.
“While exchange and MTF latencies have improved dramatically over the past few years, this improvement is all too often undermined by the legacy telco networks carrying messaging between traders and exchanges. This joint venture, together with Algo Technologies’ product offering provides trading firms and exchanges with a super fast one-stop-shop for services such as connectivity and market data. AlgoSpan will reduce data and transaction telco carrier latency as close as it is possible to get to the speed of light.”
What more can we expect from Algo Technologies this year? Low latency market data products that are currently being tested by clients, auction functionality for Algo M2 and then, most probably but dependent on market demand, reinvigorated smart order routing and sponsored access technologies. Financial growth will be organic, despite the interest of external investors, with profitability pitched for Q1 2011.