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Co-location and proximity services allow market participants to significantly reduce the impact of latency on trading, typically taking market access times down into microsecond and soon to be nanosecond ranges. But co-location does not eliminate latency from other sources, including processing times within the exchange and reaction times within the participant’s own installed systems. Network latency also remains a critical factor affecting multi-venue trading and traders using multiple co-location centers.

Understanding and providing insight into these aspects of latency brings significant benefits to co-location participants. Finding and eliminating latency bottlenecks within installed systems ensures they are fast enough to reap the full benefits of co-location. Monitoring the speed of interactions with the exchange can reveal faster ways to trade, as well as showing how to adapt strategy behavior in response to changing latency conditions in different parts of the market. For multi-venue and multi co-location traders, deciding where to deploy strategies and how to route order-flow is easier when you have accurate knowledge of the latency matrix between different venues and co-location centers.

Producing these metrics in an environment of ever-growing message rates requires considerable processing power. Dedicated latency management systems that use passive monitoring provide an independent way to produce the data without interfering with the trading process itself.

A dedicated system for co-lo deployment must be compact and efficient in terms of power and space requirements, key system capabilities should include:

• Accurate measurement of microsecond intra-co-location latency, with ability to decode and track complex business logic in multi-protocol environments
• Ability to monitor the latency matrix for both market data and order-flow traffic between multiple venues and co-lo sites, including self-synchronization support for sites that don’t have external clock-sync infrastructure
• Comprehensive transactional latency measurement for order-flow traffic, including support for order-to-acknowledgement, order-to-fill, tick-to-trade and trade-to-tick latency
• Built-in support for low-latency network monitoring, including detection of microbursts, sequence gaps, bandwidth requirements, and one-way and round-trip network latency

To support operational alerting and trading functions such as smart order routing, the latency management system must be able to present its data in real-time. In today’s environment this can mean producing and classifying real-time output for millions of messages per second at each instrumentation point. Performance and scalability are therefore key system requirements.

Recommended further reading

The white paper, Latency Management For Co-Location Trading discusses these benefits in detail and explains how to instrument the co-location environment for high-precision latency management, the discussion covers:

1. Intra Co-location Latency - within the participant’s own installation
2. The Latency Matrix – for multi-venue trading strategies
3. Inter Co-location Latency - how to monitor network latency between co-lo points
4. Exchange-Side Latency Monitoring and Transparency – rationale and requirements for provision of latency transparency

Please email: to request a copy of this white paper