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Like its fellow derivatives exchanges in
Europe and the U.S., Eurex is racing to
keep up with the rapid rise in order message
traffic on its electronic trading system.
Thanks to the popularity of computerized
"black box" trading and the automated trading
machines used by market makers, electronic
exchanges all over the world are coping with
unprecedented volumes of message traffic on
their networks. While they welcome the additional
liquidity, the challenge is to prevent the
stream of electronic messages from overwhelming
the capacity of their networks.
Eurex is no exception. At Eurex, the volume
of quotes—which the exchange defines as
any type of order book update, including order
modifications and cancellations—have risen
exponentially since January 2005, when the
Frankfurt-based exchange introduced a market-
maker program to provide continuous
quoting on a number of its products. Average
quotes per day rose from 10 million a day in
January 2005 to 100 million a day in
December 2005 and 145 million a day in May,
with peaks of as much as 230 million in a single
Bringing this down to the level of a single
second, which is a long time in the world of
automated trading, the maximum load Eurex
has seen is 3,600 quotes per second on its popular
DAX option contract and 17,000 quotes
per second across the entire system.
"The maximum load observed so far has not
lead to performance degradation," says Gerhard
Lessmann, a member of the executive board of
Deutsche Börse Systems, Eurex's IT provider
and a wholly-owned subsidiary of Deutsche
Börse, one of Eurex's primary shareholders.
In spite of the growth, Eurex seems to be
staying ahead of the curve of capacity demand.
Over the past year, Eurex IT developers have
introduced a number of hardware and software
upgrades to boost capacity and increase the
system's speed of response, and they plan some
additional changes that should keep performance
high. Thanks to these upgrades, the
latency—the time between the user request
and the exchange's response—is now down to
about 40 milliseconds from 80 or 100 milliseconds,
according to Lessmann.
One crucial feature of the Eurex system is
that it is configured in a very scalable way. As
demands on the system have grown, the
exchange has been able to add more machines,
and the exchange says there is plenty of room
for further growth. The key to this scalability is
that the system relies on a computer cluster,
rather than a single supercomputer.
In the computing world, the term cluster
refers to a group of computers linked together
so that they effectively function as if they were
a single computer. Clusters are typically much
more cost-effective than single computers of
comparable speed or reliability.
Eurex currently runs on a cluster of eight
host systems split across two data centers. The
computers work together to keep loads balanced
and mirror data between their drives to
prevent any losses. The cluster could be
expanded to 64 computers, Lessmann says,
and those boxes could be joined by others—
many others. "We could theoretically run 100
clusters in parallel," he says. "Scalability by
adding machines will not be an issue for the
The exchange is looking at making an
upgrade to the machines themselves, though
more to further cut costs than to enhance performance,
Lessmann says. After the next
release of the Eurex system in November, the
exchange is planning to begin replacing its
Alpha boxes with Itanium machines. Both
types of computers are provided by Hewlett-
Packard, but the newer machines run on
Itanium 2 chips. Lessman says the Itanium
machines offer more capacity and more speed
at a quarter of the price.
The upgrade, which is still in the planning
stages, will affect the eight back-end
hosts, which handle the matching and clearing
of trades, and 30 local access points
located in various trading centers around
The back-end operating system will continue
to be Hewlett-Packard's open VMS platform.
Open VMS was the first platform that
permitted clustering, he says, "and it is still in
my opinion the best cluster you can have."
Eurex is evaluating the demand for the
Linux operating system for the customer side
of the system, Lessman says. The exchange
currently offers Windows and Solaris-based
software for the MISS servers, which sit at the
customer firm and function as the gateway to
the network. Eurex currently serves around
2,000 MISS servers, which are connected to
around 10,000 workstations worldwide.
Another project Lessmann is undertaking,
which should help clearing members
cope with today's high-velocity trading, is a
simpler way for clearing members to monitor
the risk that individual traders are taking.
"We will upgrade our risk management tools
to better reflect today's trading environment,"
Lessmann explains that the exchange is
working on an improved capability to stop
trading in an account if a trader is suddenly in
risky territory. How this "panic button" would
work—whether the clearing member could
trigger it on its own or after an alert from the
exchange—is still being discussed with members
of the exchange, according to Lessmann.
"We are in discussion with customers about
what solution we should implement," he says.
Completion of this project, he says, is no more
than a year away.
In a related project, Eurex would like to
speed up the processing of intraday margin calculations.
Currently the exchange does the
calculations every 15 minutes, but given how
quickly the black box traders move in and out
of the market, the exchange wants to develop
a process that is faster and eventually real
time. Lessman concedes, however, "That is a
bit far off."
While the current quote tsunami seems to
have come out of nowhere, it's actually a problem
that Lessmann says he first observed in
the early nineties. The problem then was
caused by a single client who had configured a
machine to transmit quotes and was consuming
90% of the system's resources. "We talked
to that firm and explained the difficulties they
were causing. They understood the situation,
and it gave us enough time to upgrade the
hardware and the system in order to deal with
this," he says.
In the near term, Lessmann seems confident
that Eurex can keep up with the growth
of algorithmic trading. However, if quotes
continue to rise, Lessmann says he is unsure
whether Eurex will always be able to continue
this trick of adding more capacity without
adding any extra costs. While business is good
at Eurex, actual numbers of trades have not
kept pace with quote growth. In 2000, Eurex
had 1.2 quotes per contract. In 2004, 2.16. By
2005, this had risen to 7.88, and by 2006 it
had climbed to 17.09 – eight times as many
quotes per contract as in 2001.
Like other exchanges, Eurex collects transaction
revenues based on the number of orders
that are filled, rather than the number of order
messages traveling over its lines. Some
exchanges have responded to the rise in the
quote-to-fill ratio by charging extra fees for
firms that go over a certain quote-to-fill ratio.
Lessmann hopes that Eurex will not have
to follow suit. "Quoting is good for the market.
It helps liquidity; it makes for more attractive
prices. Our goal is to support it and not to
punish it," he says.
To keep performance up, Lessman and his
team also are working with customers to
examine how well their systems are set up,
which can have as much of an effect on performance
as anything that happens on the
Eurex side. "The configuration of the customer
environment can have a huge impact on the
performance," he explains.
Lessmann says that his team is undertaking
two initiatives to help customers improve their
configuration. The first is to write a booklet
giving customers some tips on the best ways to
configure their equipment and avoid common
mistakes, such as having too many firewalls,
overloading the local area network, and
assigning lines to the MISS server in an inefficient
The next step is to introduce a system that
will enable clients to track their order performance
against their peers. Surprisingly, perhaps,
Eurex clients' IT staff liked the idea. "They
were very happy," Lessmann says. "I was surprised,
because the benchmarking also makes
very transparent how they do their job."
There are some limits that even
Lessmann's team can't engineer around: if two
commands are coming in equally fast, the geographically
closer order will likely be filled
first. High-velocity traders are putting their
machines as close as possible to the matching
engine, and will experiment with different
access points to see if one provides faster
access than another. "There is no denying the
speed of light," he says.
Faster than the Blink of an Eye
Recent improvements to Eurex technology have brought the average processing time for order
messages down to 40 milliseconds. This measures the amount of time required for an order message
to travel from a Eurex network gateway to the host system and return to the gateway. This
does not include the amount of time the order message spends within a customer’s network.
The increasing activity of automated trading systems connected to Eurex, combined with a shift to
continuous marketmaking for options products, has resulted in an explosion in the number of order
messages transmitted to the exchange. The average number of quotes processed each day has risen
from 10 million in January 2005 to 145 million in May 2006, with peaks of as much as 230 million.
The network operated by Eurex is organized into three main tiers. At the core of the network are the host systems, which provide central functions
such as trade matching and processing. The host systems reside at two locations in Frankfurt linked by using clustering techniques. The next tier contains
the access points through which member firms connect to the exchange. Eurex currently operates access points in New York, Chicago, Dublin, London,
Gibraltar, Madrid, Paris, Amsterdam and Helsinki, and is preparing to launch an access point in Singapore. Lastly there is the Member Integration System
Server, which resides at the client sites and operates the applications that provide the exchange's functionality to market participants.
Bennett Voyles is an independent business journalist based in New Jersey.