Was Flash Boys a flash in the pan? Nearly a year
since the Michael Lewis best-seller assailed high frequency
trading as the root of all evil or at least unfairness
in equity markets, advocates of algorithmic techniques
may still be muttering about how their profession was tarred.
But they have had to move on; unlike the printed pages of
Flash Boys, markets, competition and technology
are never static.
Typical of those active in the
speed-trading world, John Bates believes the book has been
thoroughly debunked. Bates, who currently leads the
big-data analytics, cloud and industry solutions businesses of
Darmstadt, Germanybased Software AG, developed the Apama
complex-event-processing technology that became a component of
algorithmic trading more than a decade ago. He contends that
HFT plays a valuable role in providing liquidity to the markets
and will continue to do so, albeit under tighter profit margins
and regulatory scrutiny.
And that would be the case with or without the publication
of Flash Boys.
Nor has there been any decline in demand for, and
innovations in, low-latency data, analytics and trade
execution. In-memory database companies McObject
and Kx Systems
continually ratchet up their performance and submit to the Securities
Technology Analysis Center for benchmark validation.
Another case in point is SR Labs, a New Yorkbased
market data and exchange connectivity systems specialist.
Richard Korhammer, who co-founded Lava Trading in the late
1990s and became CEO of SR Labs last September, notes that
regardless of trading or investment strategy, at any
given speed level, someone is going to be at the exchange
first. There are operational differences when the
relevant intervals are measured in seconds versus microseconds,
Korhammer explains, but speed matters nonetheless true
both pre and postFlash Boys.
Lewiss book brought attention to the upstart IEX Group
platform and its order-handling methods designed to level out
the advantages of ultralow-latency algorithms. Of course, IEX
predated Flash Boys, and it likely would have gained
prominence anyway because it offered something that
institutional traders were open to and willing to pay for. Look
for Aequitas NEO Exchange, a similarly motivated venture in
Canada scheduled to launch March 27, to make an IEX-like impact
without Flash Boyslike hype.
The overriding message of Flash Boys was that
trading speeds had gotten out of hand and needed to be reined
in through rule-making or IEX-type speed bumps. But the book
did not take note of more nuanced and responsible attitudes in
the industry toward the ever accelerating technology.
Back in October 2012, Ari Studnitzer, head of architecture
and product management in CME Groups technology division,
wrote on the Chicago-based exchange
operators website that customers dont
just care about how many orders can be processed in the blink
of an eye. Instead, efficiency, effectiveness and
market integrity were overtaking speed as driving
factors of electronic trading, while CME focused on
increased capacity, consistency and predictability of our
Some of the hardware that helps push the speed envelope
notably, graphics processing units and
field-programmable gate arrays (FPGAs) are being applied
to such constructive ends as operational reliability, real-time
surveillance, compliance and risk management. With GPUs as part
of its Adaptiv Analytics, for example, SunGard
says firms can perform up to 100 million complex valuation
calculations per second, nearly five times the rate of a
stand-alone central processing unit.
NanoSpeed, a financial
industryfocused FPGA company, provides what is
arguably the fastest technical trading solution, says
chief technology officer Sanjay Shah. Meanwhile, its Nano-Risk
system checks for fat-finger errors and other risks in half a
microsecond 50 to 100 times faster than using
software, Shah notes.
Late in 2013, Metamako debuted a virtually-no-latency
device that is pitched not just to improve trading performance
but also to ensure consistency and a level playing
field for deliveries of exchange data. Co-CTO David
Snowdon says determinism is crucial. Whereas systems were
traditionally optimized for average latency, the
concern now is worst-case latency, and it must be
There will be no end to that race.