IBS Journal - News

Merrill Lynch Securities Japan has introduced what it claims to be Japan's first third party hosted service for ultra low-latency electronic trading. The new direct market access platform has been built around Tokyo Stock Exchange's (TSE) new ultra-fast cash trading system, Arrowhead (IBS Journal, February 2010, Tokyo platform resets trading experience).

The new service, which saw Merrill Lynch partner with market data vendor, Activ Financial, and Tokyo proximity location provider, KVH, is expected to reduce trading costs while maintaining connectivity speeds on a par with some of the existing colocation platforms offered in Japan.

Describing the new solution as 'a cross-connect to direct TSE data', Frank Piasecki, president of Activ, says the offering is 'a whole other world' from consolidated feeds. 'This is about the configuration of a colocated, fully managed infrastructure for ultra-low latency market data delivery, with the aim of supporting electronic trading applications where ultra-low latency is the primary requirement.'

Proximity hosting in this case, Piasecki explains, enables the pick-up of data 'literally a couple of cages away from where it's created'. This can be processed 'in micro-seconds' before being handed off to the customers' applications 'hosted in the cage next to yours'. He adds: 'You couldn't get a more optimised version for Tokyo itself'. Cost savings, he anticipates, will be 'profound', the users benefitting from the platform's flexibility of data delivery.

In addition to Arrowhead connectivity, the platform offers market data and execution access to all other Japanese exchanges as well as Merrill Lynch infrastructures located elsewhere in Asia. Derivatives exchanges are also supported and the solution is expected to offer a lower latency service when the Osaka Securities Exchange moves its futures and options trading engine to Tokyo in 2011.

In terms of technology, the new service is the result of specific IT development around interfacing to the TSE and the new feeds that the exchange produces. 'As the TSE changed its trading engine, the Arrowhead project created new outputs,' explains Piasecki. 'Those outputs required everyone to rewrite for Tokyo.' Merrill Lynch's partnership with KVH and Activ was about 'ensuring it was ready on day one so customers could take advantage of what was essentially a new venue'.

Although no definite plans have been announced, Piasecki says the model that has been built in Asia for Merrill Lynch is 'very replicable' globally. 'It's what a hedge fund used to do on its own at great expense and complexity. Now it's all packaged. You're not going to do it any better if you did it on your own.'