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The High Frequency Game Changer: How Automated Trading Strategies Have Revolutionized the Markets by Sang Lee, Paul Zubulake

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Chapter 3

Trading Infrastructure

Increased reliance on electronic trading and algorithmic trading, combined with regulatory and structural changes, accelerated the pace of overall electronic trade messaging rates over the last few years. These trends are, perhaps, most notable in the United States, but are clearly the direction for global markets as well; these trends are not just in equity but in all exchange-traded products. The near quadrupling of U.S. equity messaging volumes since December of 2006 is a clear indicator of the scale of this increase. Figure 3.1 shows the growth in TAQ (trade and quote) data.

FIGURE 3.1 Exponential Growth in TAQ Data

Source: NYSE Euronext, Aite Group

ch03fig001.eps

If U.S. equities continue their pace, Aite Group expects message volumes to average 1.2 billion messages per day by 2011. The market already saw peak days approaching this number in late 2008. Electronic trading firms should expect to have to manage those rates on a consistent basis while accounting for new peaks that could approach 1.8 billion messages per day on high days. Few, if any, existing market data infrastructures could sustain those data levels as they exist today.

Options pricing is exponentially worse than equities market data volumes. Current Options Price Reporting Authority (OPRA) data peaks exceed 1 million messages per second. Aite Group expects OPRA will generate peaks exceeding ...

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