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The Trading Mesh

HFT in a Box

Thu, 24 Jun 2010 16:29:00 GMT           

Interview with Mo Takhim, ULLINK

In the latest in our series of High Frequency Tradinginterviews, we talk to Mo Takhim, Head of Managed Services at ULLINK. Mo’s role includes leading the company’s efforts to offer fully-managed connectivity and trading services as well as creating and positioning new services. He is based in New York City and supervises a team of dedicated Product Strategists. Prior to joining ULLINK, Mo worked at NYFIX for 6 years as Head of Trading Floor Operations, where he oversaw Order Management and Exchange Connectivity systems for over 120 clients. Previously, he ran the Exchange Floor Operations Technology at Goldman Sachs for 5 years.

Mr. Takhim is a graduate of the University of Nice with a Bachelor’s degree in Telecommunications and Network Engineering.

High Frequency Trading Review: Mo, what is your definition of high frequency trading?

Mo Takhim: The two million dollar question! Different people have different ways of interpreting it. High frequency trading involves using fully automated strategies that seek to benefit from the market liquidity imbalances or short term pricing inefficiencies without any position left at the end of the day. It produces the large-scale turnover of numerous positions, making a small return on each turnover.

HFTR: High frequency trading is highly dependent on technology and ULLINK is a technology vendor. Where would your offerings sit in the whole high frequency trading ecosystem?

MT: Well in HFT there are two subsets. There’s low latency high frequency trading and there’s ultra-low latency high frequency trading. A lot of the tier one proprietary trading firms that have their own HFT operations are the true ultra-low latency players. These guys look at every single micro second and they find a way to be faster than the guy next door. They are leveraging the best high computer systems out there, the fastest network technologies in strategic co-location data centers. So there’s a tremendous amount of money being put into those types of infrastructure in order to leverage the best solutions out there.

Then you have your low latency high frequency traders. These are guys that co-locate at a market to take advantage of the latency arbitrage in a high frequency trading capacity. But they will never be as fast as the ultra-low latency high frequency traders, who are optimizing their infrastructure to be faster. Building aHFT strategy on its own is a very costly exercise and building the infrastructure around those strategies is again a whole different story and a lot of these firms do leverage latency arbitrage by co-locating with matching engines.

So the way we position ourselves is that we are in the low latency high frequency trading, not in the ultra-low latency high frequency trading space.

HFTR: Is that because the ultra-low latency high frequency traders would build pretty much everything themselves?

MT: That’s correct. You will never find an ultra-low latency high frequency trading firm going through a vendor. I’ve never seen it and I never will. There isn’t a vendor out there today that offers a Managed Service offering in the ultra-low latency space. There are vendors that offer separate components for ultra-low high frequency trading but not a complete solution. We have FGPA cards vendors, we have network gear players like Arista that offer ultra-low latency switches, you have guys like SolarFlare that offer ultra low latency 10Gb NIC cards. So these are a sub set of vendors that have solutions but the solutions have to be compiled, the components need to be put together

HFTR: Okay so looking at the low latency space, as opposed to the ultra-low latency space, can you tell us a little bit about what you offer?

MT: Well we have two solutions. One of them is called ULNET+, which is a fully managed high performance low latency DMA solution that we offer to our clients worldwide. This solution consists of a fully managed offering where we manage all the different aspects of the infrastructure from connectivity, software, monitoring, hardware and therefore allowing our clients to only focus on their business strategies alone while we focus on everything else to make those strategies profitable for them.

And the other solution, which we haven’t launched yet, is a new concept that we like to call “HFT in a Box”, high frequency trading in a box. Effectively, what we’ve done is we’ve looked at all the components that our clients use today in a typical HFT infrastructure and compiled them together into one single high computing server. Every proprietary high frequency trading firm has a “black box”. That black box needs to be fed with market data in order to make trading decisions. The orders will then have to go to a low latency DMA vendor because none of these algorithm providers have all the adapters for every market, and have a pre trade risk control layer before going to each market.

By looking holistically at the overall architecture, you will realize that there is about 6 to 8 hops before an order is put on a wire to the matching engine. Effectively, what we’ve done is eliminated all those hops in the HFT in a Box concept, where an order comes in, it goes to one server through a PCI express card that has all the market data feed handlers, then it goes through the algorithm, the client strategy connects to our Bridge which would be embedded with pre-trade risk control and the order is sent right down to the market via Fiber circuit. By eliminating all these hops, we were able to reduce latency by an average of 80% compared to your standard model today.

HFTR: So the key advantage of this I guess is the reduction in latency? The speed from taking all of these hops out and putting it into one process?

MT: Yes, into one fully optimized high computing server.

HFTR: You mentioned pre-trade risk there. This is a hot topic at the moment with the whole controversy around sponsored access, naked access and direct market access. So where does the pre-trade risk component fit in to your HFT in a Box?

MT: It’s part of it. The pre-trade risk control component is embedded within the platform in a component called the UL IRIS. So there’s no additional layer for that order to go outside the box to another server in order to filter those orders and then send the messages back to the server. That module is embedded in the connectivity module for minimal latency and the order comes from the client algo, through the pre-trade risk control module out to the market.

HFTR: Right, so if I’m a proprietary high frequency trading firm, I’ve got my black box that’s generating the orders, what else do I then need besides your HFT in a Box, or is that it? Presumably that would be implemented at the broker firm rather than at my own firm if I am not a member of these different exchanges?

MT: Depending who you are, if you are a BD (broker dealer), if you are a prime broker or you are a proprietary high frequency trading firm. Let us assume for a second you are a proprietary HFT firm and you want to connect to several markets and these markets do offer co-location in the same data center. So what you do is you take the ULLINK HFT in a Box solution and install it in the data center where that exchange is located, whether you do it in your own cabinet or you can do it through one of ULLINK’s cabinets within that data center.

HFTR: Is this all provided by ULLINK or are you working with partners on this?

MT: We are working with different partners on this. We are leveraging Agilysys with their expertise in their hardware and professional services and customization of different components and our second partner is Activ Financial, where they provide us with their latest second generation market data card called the MPU (Market Data Processing Unit).

HFTR: So who are you aiming this offering at specifically?

MT: Well as you probably imagine this doesn’t come very cheap because you are looking at the best-of-breed solution on the market. We’re looking at very high-end computing servers, we are looking at the best network cards, the best switches, the best processors out there. When you combine all these into a best-of-breed solution, usually it’s not cheap. So we are looking to our ideal clients at the prime brokers, the high frequency trading firms out there that are looking to have that competitive edge, are looking to be different than everybody else. Having said that, we are also planning on having a solution that can be hosted and shared among clients that can’t afford the premium solution.

HFTR: And they would typically be propriety trading firms?

MT: Yes, propriety trading firms, smaller firms that are looking for fast DMA, low latency DMA, but these are not firms looking to compete at the single digit micro second level.

HFTR: Which markets are we talking about here? Presumably it’s US equities markets but what else?

MT: Well the concept in itself right now is starting in the US where we are going to be benchmarking this solution with different markets, mostly on the equity side but also the futures and options markets.

HFTR: Just in the US?

MT: In Europe and Asia too. We are validating the concept first in the US and we’ll be expanding it to other regions before year-end.

HFTR: Who would you see as being your main competitors for HFT in a Box? I imagine ULLINK isn’t the only firm that is doing something like this.

MT: Well, we are the only one offering a solution like this but I am pretty sure that once we roll it out then this might get a couple of people thinking, if you know what I mean! The good thing about it is we are the ones thinking outside the box. ULLINK is known for innovative solutions and we are happy to offer this as a vendor and our clients are very excited about it. We have the support of our client base and we have actually clients already lined up to leverage this solution.

HFTR: Okay just moving to a different track. You obviously talk to a lot of people in the market, being a vendor of high frequency trading solutions. What’s your take on the state of the market at the moment? Obviously there is a lot of controversy going around, talk of transaction taxes and increased regulation and so on. Is there a possibility of high frequency trading being regulated out of existence do you think?

MT: Well I don’t think there is a danger. As far as high frequency trading being regulated, I won’t disagree. I think there still needs to be some control over what goes on in that space and I think the SEC has taken a very hard look at it. We’ve seen some initiatives around naked sponsored access that are still being debated and I am confident that the SEC and the FSA will indeed try to make sure that HFT is a regulated practice to a certain level.

Look at the May 6th event in the US, which was a good wake up call for all of us. We clearly witnessed that the regulation is not where it should be, that the SEC still has a lot of work to do. So that was a good example of how weak the markets still are in terms of regulations and specifically in high frequency trading. Having said that, I don’t consider HFT as a big risk. I think this is a trading practice that is no different than the way specialists used to trade back in the day.

Having said that I think the regulators should indeed take a close look at it and make sure that the end user, the investor at the end of the day is protected in all cases.

HFTR: So where next for ULLINK?

MT: As you know ULLINK, its has always been our strategy to be the innovators in the space. Our mindset is geared towards our client best interests and how to offer the best of breeds solution to give them an edge. We are excited about all the different on-going projects and the support of our client base to make these projects come to fruition.

HFTR: Well, best of luck with it Mo, and thanks for talking to us at the High Frequency Trading Review today.

MT: Thank you

 

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