The International Securities Exchange, which is already the world's largest equity options exchange, is moving into electronic stock trading in the third quarter with a platform designed for high-speed electronic and algorithmic trading.
For options, the ISE developed an innovative market structure, using technology from OMX, which integrated auction market principles into an advanced screen-based trading system, and launched the first fully-electronic US options exchange in May 2000.
Sometime in the third quarter this year, the exchange expects to launch the ISE Stock Exchange in partnership with strategic partners including Bear Stearns, Citadel Derivatives Group, Deutsche Bank, Interactive Brokers Group, JPMorgan, Knight Capital Group, and Sun Trading. ISE’s first product will be MidPoint Match (MPM), a continuous, instantaneous, fully automated, and anonymous matching platform for trading stock, built on Windows. This patent-pending trading platform will match and execute all round lot orders and is especially suited for orders generated by algorithms. The MPM will be followed by an integrated displayed market offering in the fourth quarter, subject to regulatory approval.
David Krell, ISE’s president and chief executive officer, said the ISE Stock Exchange will bring the same level of creative functions to the equities markets that the ISE has brought to options.
“We believe that the MidPoint Match for equity executions addresses untapped needs in the market,” he said.
MidPoint Match is far from the ISE’s first foray into Windows or Microsoft-based technology. In 2001 the exchange decided to enhance its existing surveillance system, which was originally an outsourced solution that did not meet performance requirements from either a time-to-market or cost perspective. After surveying the choices, it decided to build one in-house using the Microsoft .NET Framework, said Daniel Friel, the chief information officer at ISE.
The exchange originally outsourced the surveillance system, but Tom Reina, the head of software development, and John Ryan, director of technology architecture, determined that they needed to redesign it and build it themselves.
“We wanted to ramp it up more quickly than the provider was able to do. .NET was just making news headlines, and we decided in mid 2001 to use it. We were able to develop very quickly because the language is so easy to use and we achieved very good performance. We deal with very, very high message rates – and that was true even four or five years ago – and for that platform to be as stable as it was so early was really quite astounding,” said Reina. Since then, the .NET Framework has been the exchange’s standard.
Now the ISE mixes software packages from vendors, internal development and even contracts with outside firms where that makes sense.
“We won’t invest in building our own middleware if it is available on the market,” explained Ryan. The ISE uses Tibco for internal messaging and HP’s Reliable Transaction Manager on OMX. It also bought a FIX engine.
At the market opening, volumes run 100,000 messages per second; the exchange has a scalable model that allows it to handle volumes as they increase. After its success with surveillance on .NET, the exchange built a mission-critical Real Time Processing (RTP) system to provide high value operation tools for the market control desk and the computer control desk. Because of RTP’s high transaction and throughput rates, ISE was selected by Microsoft as one of seven companies to participate in the Technology Adoption Program (TAP) to represent the financial services sector.
“When we completed that, we proved that .NET was strong enough to be used on a real-time basis and decided to build some more.”
“Building in .NET and C# is much easier than building on a language like C++,” said Reina. “Together they allow developers to focus on solving the business problem, rather than wrangling with the eccentricities of the language. For example, C++ requires a lot of thought and design just to deal with managing memory.”
Because it is using the latest in development tools, the exchange can take new university graduates and have them writing quality code quickly. As it builds new applications, it continues to build its internal knowledge base, something it would not be accomplishing if it outsourced development.
“The expertise that went into building and developing that application stays with us, because the work was done by ISE employees, and that gives us a great platform for building in the future,” said Friel. “I think we have built a world-class development team.”
His job is to keep the technology ahead of business demands by anticipating the requirements 12 months out, a challenge in the fast moving options business, and one that won’t become any less complex with the move into equities and the eventual imposition of Reg NMS.
“We are always looking at all the possible choke points across the technical architecture – the network, the number of servers and limitations within the application – and making sure we attack those before we hit the thresholds. We are in a highly competitive business, and if we don’t do it right our customers will send their business to others,” Friel said.
Capacity is too important to outsource, said Friel, and the exchange runs two data centers.
“Capacity is the holy grail of the options exchange industry, and we want to make sure we control our own destiny, so we make sure we build the capacity to support our business,” he said.
The IT group has a rigorous project methodology and follows best practices across the enterprise – in security, disaster recovery and quality assurance.
Almost all the ISE development is on Windows X-64 for AMD Opteron servers. For production, the firm uses SQL Server 2000, although it is evaluating SQL Server 2005 and expects to move onto it soon. To achieve scalability and flexibility, it uses two-way and four-way servers, plus a few eight-way machines.
“This way we can spread the applications across multiple servers and scale quickly,” said Ryan. “We typically don’t go with the big iron. We design our applications so they can be scaled across machines, which we think is more cost effective.”
www.iseoptions.com