CME fans the flames of HFT, implements NanoSpeed’s solution to speed the execution process

The proprietary trading desks of New York and Chicago, along with many professionals which practice High Frequency Trading (HFT) have not been deterred by worldwide attempts to impede order flow generated by companies and individuals using cutting edge technology to gain a perceived advantage over those with less advanced systems.

Indeed, on the contrary – North America’s technological drive toward ever decreasing latency in execution and continual advancement of components which serve to make up the trading infrastructure, from datacenters, to trading venue execution, to the method by which market participants connect to exchanges. Today, multi-asset derivatives market place CME has shown its hand with regard to HFT, and that it is a proponent, with FPGA trading technology solutions provider NanoSpeed having released its latest Nano-Risk FPGA for the CME.

With a latency of sub 60 nanoseconds the product is the new benchmark for fastest pre-trade risk checks. Nano-Risk is fully compliant with CFTC’s Concept Release on Risk Controls and System Safeguards for Automated Trading, SEC’s 15C3-5 regulation and ESMA’s guidelines on automated trading.

Sanjay Shah, CEO of NanoSpeed, said: “For all our clients speed is of critical importance, especially in trading, but reliability is equally important: we’ve reduced the latency to under 60 nanoseconds, but without compromising our reliability.” He adds: “Our CME-certified pre-trade risk management is the ideal solution for investment firms offering SDMA (sponsored direct market access) and trading venues; a global investment bank has just signed up with us to do pre-trade risk checks on orders from its SDMA clients on the CME. Nano-Risk is an excellent fit for proprietary trading firms, statarbs, hedge funds and SDMA brokers wishing to take advantage of the substantial speed benefits and functional enhancements provided by moving the risk management and normalisation functions to the FPGA.”

Uniquely, NanoSpeed uses the aerospace development model as the basis for its design and testing. Nano-Risk, used for pre-trade risk management in automated trading and HFT, is the result of some of the industry’s best FPGA engineers, quant traders and financial markets specialists combining their talents to build the most efficient and reliable FPGAs available in the market today. Although NanoSpeed’s Nano-TG (FPGA Trading Gateway) already offers instrumental pre-trade risk checking, Nano-Risk provides extended functionality and is compliant with key North American and European regulations.

Attempts to stem HFT and ultra low latency execution by regulatory authorities as large as the European Commission’s financial services division is not purely the preserve of bureaucrats, however. Last year, ICAP’s electronic brokerage subsidiary EBS considered imposing a ‘latency floor’ – effectively a standard delay between an order arriving at the liquidity source and its execution, mainly to attempt to avoid processing this type of order flow. Germany’s BaFIN was the first authority to actively take a stance against HFT in 2012, where it was outlawed.

Since then, Australia has embraced dark pool usage, deeming anonymous liquidity as an integral part of the financial landscape and generating a set of regulations around it, and the US continues to remain true to its ideology as a truly free market. With Europe’s wish to put a stop to what are considered ‘unfair advantages’ that cause ‘disruptive order flow’, the challenge of stemming this would not be easy, given its global nature.

Indeed, Russia’s Moscow Exchange has rapidly risen to prominence, and is connected via high speed point to point dedicated connections to Moscow and London, provided by TMX Atrium. With the rise of the demand for ruble liquidity, and Russia being outside of the European Union, it is unlikely that any continental European government, regardless of its gargantuan size, will have jurisdiction over this at all. Congruently, CME has established transatlantic derivatives market places over recent years, and there is no disputing the high level, state of the art technologies used within the execution cycle at such venues.

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