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Preparing for hardware-accelerated High Frequency Trading

High Frequency Trading (HFT) firms have invested heavily in faster software, lower latency networks and hardware located closer to trading venues. This has resulted in higher transaction volumes over recent years. Indeed, a recent Securities and Exchange Commission report illustrated the sweeping changes in the US-listed equity markets by highlighting the near seven-fold growth in transaction volumes for NYSE-listed shares in less than four years.

The next evolutionary phase of HFT firms will see elements of software solutions being implemented on hardware such as Field Programmable Gate Arrays (FPGA). FPGAs are computer chips that use reconfigurable electronic circuitry. Solutions implemented with FPGA are capable of making trading decisions over 20 times faster than traditional software based solutions and will lead to a step change in the volume of orders generated by trading firms.

The initial response of trading venues to rapid increases in transaction volumes has been to invest in IT infrastructure and to throttle order flow into the venue. However, trading venues may find themselves under siege as more trading firms implement hardware-accelerated solutions and transaction volumes climb steeply again. IT infrastructure may not be able to cope and prolonged throttling could constrain trade volume growth and encourage trading firms to seek out faster venues.

To protect market share and secure transaction volume growth, trading venues must understand the impact that hardware-accelerated solutions will have on their organisations. This will require them to:

  • forecast the expected transaction volume growth from HFT firms: This forecast will provide a baseline capacity against which a trading venue can assess its existing infrastructure.

  • identify the bottlenecks in the current infrastructure: Identifying the bottlenecks that exist and establishing when these will become a constraint in the current infrastructure can enable trading venues to define a programme of change to meet forecast transaction volume growth.

  • assess the benefits of implementing hardware-accelerated solutions at trading venues: This analysis must examine how trading venues can use hardware-acceleration itself to cope with higher transaction volumes and ease any dependency on order throttling. The analysis must balance the benefits of increased capacity with the costs of hardware-acceleration implementation, integration and maintenance.

PA Consulting Group has experience in implementing optimised algorithms onto FPGAs to increase performance.  This includes developing bespoke algorithms suited to a parallel architecture, porting existing algorithms from software to hardware and benchmarking for optimum system results across hardware and software.

To help you formulate and implement a strategy to deal with increased order volume from hardware-accelerated solutions please, contact us now.

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