Speed and Scale, CME and Google—Take Your Pick

Speed is of the essence, and scale is the growth engine.

Two critical components of trading are speed and scale—the low latency of execution and the scale of liquidity reach.

When it comes to low latency, cloud infrastructure has always been a barrier to pure reliance on fully moving trading apps to the cloud. However, the announcement of the CME Group and Google Cloud’s plans to build a new private Google Cloud region and co-location facility in Aurora, Illinois, is a major effort to close the latency and speed gap.

Exchanges are expanding both horizontally and vertically—horizontally providing additional data and securities services. Here, directly, CME partnered with S&P Global IHS Markit to launch the OSTRA, a suite of post-trade services that serves global over-the-counter markets across interest rate, foreign exchange, collateral, equity, and credit asset classes. However, this immediate case is vertical: The private Google Cloud is designed to support global trading of CME Group’s futures and options markets and offer derivatives traders cloud-based, ultra-low-latency networking and high-performance computing.

Co-location and ultra-high-speed connection will be able to provide the equivalent connectivity of a T3 leased line. Again, speed is of the essence: If I trade in microseconds, and you are in milliseconds, I can get off a thousand trades before you get off one. Of course, within limits and other constraints, buffers, and exchange distribution algorithms.

Still, not everything is high-frequency trading (HFT). We are also talking about the increased need of the buy-side trader who doesn’t want to be trampled in the marketplace or the smaller/midsize institutional player who needs to minimize market impact costs that will deteriorate overall portfolio returns. These needs become more urgent as the electronification of markets goes multi-asset. Options, futures, derivatives, and credits are all trading venues that need protection speed. When the buy-side trader hedges, diversifies the portfolio, or enters a new asset class, speed is protection.

As on the motorway, we want/need the acceleration to make sure we don’t get run down by speeding lorries—on trading cost, that is. All now need speed. The HFTs will be there, but the cost point will also enable a much larger trading group to leverage the advantage of full infrastructure and services: testing, backup, and post-trade functionality.

Scale is the growth engine and what makes this global. As portfolios expand asset classes and global capital markets, cloud high-speed infrastructure is the logical path forward. As portfolios continue to diversify and traders put on option and future hedges, expand internationally into credit and alternative asset classes, and trade in and out of exchange-traded funds—not even to mention crypto—speed and scale are essential elements of a cloud trading network.

We all keep expecting cloud providers to break the constraints of financial exchange markets; here’s a step just a year away.