Fourth-largest U.S. stock exchange chooses Windows platform over Linux and UNIX; reduces latency to 340 microseconds, enabling a 580 percent increase in throughput to help gain competitive advantage.
Microsoft Corp. today announced that Direct Edge, a Jersey City, N.J.-based stock exchange, has selected Windows Server 2008 R2, Microsoft SQL Server 2008 and Informatica Ultra Messaging for its trading platforms.
Among stock exchanges, low latency is critical to competitive success. Direct Edge wanted to reduce the already low latency of its system while supporting vastly larger trading volumes. It accomplished those goals and more by rejecting Linux or UNIX and instead building its new exchange on technology from Microsoft and Informatica.
“When we put our stock exchange on the Microsoft platform, our No. 1 goal was to achieve latency low enough to compete against the biggest exchanges in the country,” said Steve Bonanno, chief technology officer, Direct Edge. “We built a real-time processing engine on Microsoft technology that published several hundred thousand transaction messages per second. At 340 microseconds, Windows delivered.”
“In building its business on a Microsoft platform, Direct Edge demonstrates the success of our continuing commitment to deliver a solid foundation for mission-critical operations in the financial services industry,” said Simon Witts, corporate vice president, Enterprise and Partner Group, Microsoft. “With the support and dedication of industry partners such as Informatica, Microsoft is pioneering a new paradigm for mission-critical workloads, providing dependability and flexibility to innovate the differentiated applications that are essential to achieving sustainable competitive advantage in today’s capital markets.”
Since implementation, Direct Edge’s market share has increased based in part on the large boost in transaction speeds and volumes and the high reliability of its new trading platform. With a market share of 9 percent to 11 percent of all trading volume in U.S. equities, Direct Edge trails the New York Stock Exchange (30 percent) and NASDAQ (20 percent), and is in a near tie for third place among U.S. stock exchanges. That milestone represented a rapid rise for the company, which had been founded just five years earlier as an electronic communications network and converted to a full-fledged stock exchange in summer 2010.
Faster Trading and More Reliable Service:
The exchange has already seen an increase in transaction volume from current customers, which it attributes to the reduced latency. To maintain that volume of business, Direct Edge had to offer its customers fast and reliable service. By deploying Windows Server 2008 R2, Microsoft SQL Server 2008 and Informatica Ultra Messaging, Direct Edge has reduced latency by 83 percent, to just 340 microseconds, enabling a 580 percent increase in throughput, and it envisions further cuts in latency. In addition to the sharp reduction in latency, Direct Edge has also achieved low variation in latency, which means customers and potential customers who are evaluating the new performance numbers can understand how likely they are to achieve the benchmark speeds in their own stock trades.
Direct Edge also chose Informatica Ultra Messaging to develop a peer-to-peer design for efficient communications between applications within the exchange platform. It also used the technology to eliminate daemon-broker messaging components susceptible to failure.
“Direct Edge’s success in achieving substantial latency reduction in order execution clearly demonstrates how competitive advantage can be achieved in today’s capital markets with our advanced messaging solution,” said Mark Mahowald, general manager, Ultra Messaging, Informatica. “Beyond low latency, however, Direct Edge demanded enterprise-class scalability, reliability and vendors with a vision. Our partnership with Microsoft has enabled the two companies to meet the lofty challenge that Direct Edge put forward for us.”
Direct Edge boosted availability by replicating its order-stream in real time for zero latency failover of trading applications. This complemented the failover clustering and disaster recovery capability at the datacenter level that Direct Edge gained through Windows Server and SQL Server. For continuity between its two datacenters, Direct Edge uses hardware replication.
Through its use of failover technology at both the messaging and data management levels, Direct Edge has gained 100 percent scheduled uptime to date.
Reduced Operating and Technology Costs:
Direct Edge also has realized substantial cost savings in both operations and technology. For example, Direct Edge saved between $3.5 million and $5 million in reduced operating costs by bringing the current platform to market a year sooner. It also saved an estimated $10 million — the one-year differential in costs related to clearing transactions. A 25 percent smaller hardware footprint saved another $1 million.
“To achieve the execution excellence required by today’s high-velocity capital markets, companies such as Direct Edge will need to be continually focused on reducing costs while they deliver superior service because many customers regard financial services firms that cannot differentiate as interchangeable,” said Colleen Healy, industry general manager, Microsoft. “Over the past several years, we have worked diligently to become best-of-breed in the areas of scalability, reliability and availability of our operating systems, application servers and development tools. As the success of customers such as Direct Edge clearly demonstrates, Microsoft, with our industry partners, delivers mission-critical solutions that allow the world’s leading financial services firms to differentiate on customer experience, economics and performance.”
Reduced operating costs and lower latency share a contributing factor: reduced hardware needs. The current platform reduces the server count by 25 percent compared with the number of servers that would have been required to scale the predecessor platform to support Direct Edge’s current business volume. That’s a savings of between $1 million and $1.2 million — a savings that will be incurred with each hardware replacement cycle.
Informatica Ultra Messaging technology, for example, reduces the messaging footprint by 50 percent by eliminating the need for messaging servers and storage area network devices. Microsoft SQL Server data compression rates of up to 8-to-1 drive down the need for storage throughout the platform.
The reduced hardware footprint doesn’t adversely affect scalability, however. Direct Edge projects that the system can support up to 5 billion shares traded daily with its current configuration and at least 10 billion shares traded daily with hardware additions to the present architecture.