The past few years have seen a substantial increase in programme trading on exchanges and an increase in the role played by high-frequency algorithmic traders.
The past few years have seen a substantial increase in programme trading on exchanges and an increase in the role played by high-frequency algorithmic traders. Today, an estimated 50 per cent of turnover in some Eurex flagship products is driven by automated trading including hedge funds, and overall more than 30 per cent of volume across all products is attributed to these automated trading systems. For exchanges and users alike, these developments represent both a challenge and an opportunity.
The emergence of sophisticated trading strategies is driving substantial year-on-year growth in order volumes that in turn spurs demand for additional market and price data. Exchanges and their members are faced with the challenge of ensuring that their IT systems and networks are capable of accommodating future demand.
Eurex has responded with regular tuning and upgrading of its IT systems at increasingly frequent intervals. Together with its member base, the exchange has drawn up a Technology Roadmap, launched in January 2006, to co-ordinate the roll-out of a range of measures designed to continue to meet the needs of both buy-side and sell-side customers. These measures include the optimisation of software and implementation of state-of-the-art hardware, such as the introduction of Itanium processors in January 2007.
The exchange has set ambitious targets to ensure that it stays ahead of market demand. By 2009, it aims to raise quote transaction capability to 1.6 billion per day, an almost eightfold increase within three years, and to increase the number of order book updates per second to 2,500 (currently 150) for futures and 10,000 (currently 4,000) for options. The plan also encompasses technology to facilitate the introduction of new products and to ensure that the system can accommodate an annual 25 per cent increase in the number of traded contracts.
The Roadmap plan has a dual focus on both improvements in throughput and functionality. The increase in system capacity will deliver an optimised performance for the response times of order and quote transactions, especially at peak times, and faster dissemination of data. In November 2007, Eurex Release 10 implemented risk monitoring and market surveillance systems to protect clearing firms and ensure the conformity of trading systems to market rules. In addition, new access solutions were made available to meet different member requirements.
The Enhanced Broadcast Solution is an optional innovative high-performance broadcast solution for the dissemination of un-netted public market data. A socket-based data distribution mechanism, its capabilities include the provision of an order book depth of 10 for options (previously only inside market data was provided) and 20 for benchmark futures. These parameters can be varied according to user requirements. In addition, a new subscription model allows members to select individual market data for all product groups relevant for their business.
In April 2008, Eurex will launch an additional optional interface known as the Enhanced Transaction Solution, enabling order and quote transactions to be sent to Eurex. The new interface is message-based and thus provides faster, streamlined access to the Eurex trading system for high-frequency trading strategies.
Eurex has already improved its system and its capacity considerably in order to enable it to handle additional order flow and transactions rapidly. The Technology Roadmap requires continual investment in terms of both financial and human resources. However, the exchange’s commitment to meeting the needs of a customer base that is globally active entails a continuing focus on the market’s requirements not just now but into the future.
Stefan Engels is a member of the Eurex marketing team
