Think of business in a new way. If one runner speeds up to get ahead of the pack, what tends to happen is everyone else speeds up to match his pace. With everyone running above their optimal level just to keep up, no one gets ahead and everyone loses efficiency… the market becomes less efficient. What if someone from the pack starts to run in a particular direction? The pack will follow and match the “leader.” Just like the Keystone Cops, the pack becomes a slapstick routine where everyone expends energy and resources to end up in another huddle, just at another location.
Getting an edge in the modern business environment has become a temporary advantage, as eventually everyone catches up. Technology that once put you ahead of the pack becomes mainstream; you have to look for another direction to run just to differentiate. In Capital Markets specifically, when it comes to trading, split microseconds provide a real revenue-driving edge. I’ve been told on numerous occasions that financial firms move hardware physically closer to the exchange to get any latency edge they can. The NYSE has even built a server room on their premise with every corporation having the exact same length of cable to the mainframe to discourage what had been a disastrous real estate land grab around their physical building.
Being able to run faster comes with its risks in trading where the edge is what enables you to get ahead. This means there is little time to decide if the direction in which you’re running is the right direction. Financial services authorities and regulators around the world have a difficult job in policing trading activity. What tends to happen is that any form of pre-trade risk needs to be calculated in parallel to any trade execution. In that split microsecond, you have to decide if the trading risks are viable and legal. There’s not much time for hesitation and there’s not much that can be done once the trade has executed.
Recently, TIBCO launched a messaging product called FTL and complementing variant, FTL Message Switch, combining the power of extreme low-latency messaging and high-end network switch. FTL enables trading firms to execute at ever faster speeds while being able to run pre-trade risk calculations in parallel – so if you are starting to run in the wrong direction, action can be taken to divert the move to safer ground. I can feel another Keystone Cops chase scene coming on. Except this time, unlike a pinball bouncing around and me not really having control over the ball once it leaves one of the springs, I can direct the ball in a direction I want it to go. In any case, I have to be fast, otherwise it will suddenly be too late.
For more information on how FTL can be integrated for an enhanced trading infrastructure, click here.
