By Jacob Bunge
January 11, 2011
NYSE Euronext has become the latest financial exchange operator to recruit a high-powered timekeeper to help measure the speed of its electronic markets, a service made more important by the rise of high-frequency traders and computer-driven strategies.
The parent of the Big Board on Monday disclosed a deal with Correlix Inc. to monitor the flow of stock orders and pricing information for traders on its Arca options market, with plans to expand the capability to other platforms. The new system lets exchanges track the operating performance of their markets and helps explain any hiccups in performance to customers.
“It’s about consistency,” said Paul Adcock, executive vice president at NYSE Euronext. He said the toll allows NYSE to check whether it has a problem with its matching engine, which is the software that matches bids and offers or another issue, or whether slow trading is because “everyone was trying to hit the door at the same time.”
New York-based Correlix, backed by a number of venture-capital firms, already provides services to Nasdaq OMX Group Inc., electronic stockexchange company Direct Edge, and CBOE Holdings Inc. (CBOE), parent of the Chicago Board Options Exchange.
The speed at which trades are executed, known as latency, is critical to algorithm-driven trading, though despite the competing claims of exchanges their relative performance is less important. Computer models are geared to the respective levels of latency at each trading platform, and if there is an unexpected slowdown at one venue, the trading program could stop trading there until the perceived issue is resolved.
“Traders could use this to compare exchanges, but they’re more likely going to use it to make more money out of each specific exchange,” said Shawn Melamed, founder and president of Correlix.
Mr. Melamed said each marketplace is like a multilane highway to the matching engine that executes trades. Customers can choose any lane they like, but don’t necessarily know how many cars are in front of them, or whether it would be smarter to switch lanes and take a different electronic pathway to the matching engine.
He said his firm’s aim is to help exchanges tell customers which lanes might be plugged and whether it is smarter to take a different route, select a different gateway or stop all dealing in a certain stock like Google Inc. and keep trading the rest of the portfolio.
NYSE Euronext’s Mr. Adcock said the new feature is among several efforts to make electronic trading more effective for the company’s busiest customers. His team has built a new order-management tool that gives traders a deeper view into how their orders are moving through the exchange, and allowing them more control over cancellations.
The original article can be viewed on the Wall Street Journal web site.