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Transaction Processing Reduced To Microseconds

6 August 2008 - Features - Editor

In the fast-moving 21st century world of technology, what is considered state-of-the-art today could be redundant tomorrow. Information technology has dramatically altered the way many sectors do business, and this certainly holds true for the stock exchanges of the world, as can be seen by the fact that transaction times are starting to be measured in increments of microseconds.

A microsecond is one millionth of a second, or one thousandth of a millisecond, and is represented by the symbol “µs”. Whichever way we choose to define a microsecond, the fact remains that it is a mind-boggling speed to most people. However, the general opinion is that all stock exchanges need to start thinking in terms of microseconds if they want to keep up with the competition.

In an effort to improve their transaction processing efficiency, the CME Group, which operates the Chicago Board of Trade and the Chicago Mercantile Exchange, as well as the New York Stock Exchange (NYSE), have for the past year or so been adapting to thinking in terms of microseconds as the improvements in computer hardware, trading algorithms and networking push the boundaries of transaction processing times. With stock exchange systems that process millions of transactions per hour, a microsecond improvement in performance can swiftly add up to a significant competitive advantage. A recent study revealed that technology vendors are being put under severe pressure to keep up with the demands from their clients for greater speed.

In the race for speed, trading firms are buying faster processors and investing in programs that are able to run faster. They are also on the lookout for content that can be processed more efficiently, and to fill that need Reuters and Dow Jones offer encrypted news which facilitates high speed reaction times with regard to price sensitive announcements.

A spin-off of stock exchange technology that many are welcoming is the fact that traders do not need to all be clustered in the same place to carry out efficient day-to-day business. Due to the fact that trading servers can be co-located, there can be thousands of miles between traders and they can still operate efficiently. For example, in the UK some fund managers have relocated their offices in such a way as to avoid the stressful and time-consuming daily commute into London.

As the progress of technology seems to have no bounds, it will be interesting to see where it will next lead in the fast paced stock market world.


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