More than a quarter of market participants find its current structure “very weak,” according to a recent TABB Group poll, which indicates that all-too-frequent computerized trading goofs are eroding market confidence. Last month’s Knight Capital tech tragedy killed almost 20 percentage points-worth of warm fuzzies.
That’s 26 percent of drivers behind the trading wheel feeling that the track is “very weak,” up from just 7 percent in June and 3 percent in May. Slowing down the markets would help prevent such disasters and restore investor confidence, according to more than 30 percent of asset managers polled.
But they aren’t taking into account the cost of easing off the accelerator.
Pedal to the Metal
There’s no yellow flag flying over the market yet. So decelerating electronic trading is a bad idea, Irene Aldridge of New York-based high-frequency trading service provider ABLE Alpha Trading wrote last week.
“Modern market-makers’ profits are directly related to the number of market orders they service,” Aldridge said. “The more trades the market-maker can take on within a given fixed period of time, the higher is the market-maker’s profitability.”
But a false notion of high costs keep feet off the gas pedal, which in turn keeps higher speeds out of reach. And that’s because those in upper echelons don’t understand how things have changed since the 1990s.
“Fifteen years ago, the cost of purchasing technology required for a modern high-frequency setup was tens of millions of dollars, Aldridge said. “Today, comparative systems cost a few thousand dollars.”
Don’t Be Yellow
Still many organizations see a yellow flag flying over their Big Data strategy, telling them to be cautious.
“There is a tipping point when the value in Big Data exceeds the cost of obtaining that data,” SAP’s Neil McGovern told Compliance Week. As the cost of tools decreases and their value increases, firms will draw near that tipping point sooner.
That tipping point can be the green flag. Technological advances can help get firms to the starting line at the same time -- or before -- their competition.
Data storage is becoming more efficient, leading to correspondingly efficient retrieval and better real-time analysis, as McGovern noted. The past decade has seen advances in data warehousing, but McGovern predicts that future analytics could locate and examine data at its underlying source.
A Sleeker Ride
And open source technology is helping to streamline HFT’s muscle car by making it easier to manage Big Data.
“Without open source technology, we’d be hobbled applying analytics solutions to Big Data problems,” SAP’s Irfan Khan wrote in IT World last week. “Instead of having to learn about the Business Application Programming Interface, the BAPI, developers today can use a variety of languages, including Ruby and PHP, then connect to SAP applications via the NetWeaver Gateway.”
Sybase developed its Big Data solutions with the Red Hat Linux operating system, as Khan pointed out. These include SAP Sybase IQ, SAP Sybase Adaptive Server Enterprise and SAP Sybase Event Stream Processor. And SAP HANA uses SUSE Linux Enterprise Server.
“Open source technology is less considered competition than it is a toolbox,” Khan said. “And that’s great news for organizations trying to solve their big data problems.”
Watching others stumble in electronic trading can be disheartening for everyone, but it isn’t the time to throw in the towel. It’s the time to learn from mistakes, hone algorithms, invest in the right technology and race for the checkered flag.
“Slowing Down Markets is the Wrong Way to Go” by Irene Aldridge
“Big Data: For All Its Promise, Obstacles Remain Ahead” by Alix Stuart
“Big data owes big debt to open source” by Irfan Khan