LSE The focus beyond Low Latency

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The focus beyond Low LatencyEXTENT Trading Technology Trends & Quality Assurance

Eric Benedetti, Luciano ZanettiHead of Technology Products Development & Head of Technology Equity Products LSEG3 March 2013

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Agenda

1. Introduction

2. Key features from the Borsa Italiana migration to MIT

3. MIT convergence road map for LSE, Borsa and Turquoise

4. Group Ticker Plant

5. Group Trading Interface

6. Sponsored Access

7. Conclusion

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IntroductionApril 2012

• LSE

– Trading latency (Order ack): 148 us (99% avg)

– Market data latency (Tick): 50 us (99% max)

– Current Capacity (tps): 300,000 (scalable)

• Turquoise:


– Market data latency (Tick): 60 us (99% max)

– Current Capacity (tps): 300,000 (lit) + 150,000 (dark) both scalable

after rebalancing and the addition of a new partition

• LSE


Consistency improved significantly after rebalance (max 99%)

– Current Capacity (tps): 450,000 (scalable)

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LSE Market Share (calculated on value traded)

Trend in MTFs % on Trading in LSE Total Shares (calculated on value traded)

Source:- LSEG-MA analysis on LSEG, BATS figures. Latest update end August 2012.

Migration to MIT

New Pricing

Introduction

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Trend in MTFs % on Trading in BIt Total Shares (calculated on value traded)

BIT Market Share (calculated on value traded)

Source:- LSEG-MA analysis on LSEG, BATS figures. Latest update end August 2012.

Migration to MIT

First TUG

Introduction

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Agenda

1. Introduction


3. MIT convergence road map for LSE, Turquoise and Oslo

4. The Group Ticker Plant


6. Sponsored Access

7. Conclusion

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New Trading Functionalities

• Order Imbalance during auction calls

• Stamping VWAP in Execution Reports of Orders & Quotes

• Stop and Stop Limit Orders

• Market to Limit Orders

• Cancel on disconnect

• Named Orders

• Cross Orders & BTFs

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Reliability – Hot-Hot Architecture

• Focus on reliability vs performance – target 400 us

• 3 market partitions (equities, bonds, warrants) + trade reporting & after hours

• MIT synchronous mode was chosen for implementing a hot-hot configuration

• The system runs in a hot-hot configuration in a distributed and synchronous mode in the PDC an SDC

• Every system’s component is running on 2 instances in PDC and in SDC for a total of 4 instances per each component (hardware and software)

• Customers are able to access both sites cuncurrently; network failover is automatic and transparent

• For latency reasons, SDC was moved from Turin to Milan

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• PDC and SDC are synchronized at transaction level. Every transaction is committed on both sites before the ack is returned to clients

• Market data is disseminated by each site independently

• Each single logical or physical component, market partition, or the full site can failover independently and automatically to SDC in a completely transparent way

• The system is able to automatically recover: the fail of any primary hardware or software system component of

PDC the fail of any primary AND secondary hardware or software

component the fail of one or more single market partitions the fail of the entire PDC the partial or full fail of SDC without impacting PDC

• The system guarantees no loss of trades or orders

Reliability – MIT Synch mode

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MIT ExchangeSDCMilan

MIT ExchangePDCMilan

Customer EMS

Sync copy

1

Order entry

4

Execution report

2

Sync confirmation3 Async Trade Capture Report

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< 300 us

Customer OMS

Reliability – Trading consistency

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Customer front-ends

MIT ExchangeSDCMilan

MIT ExchangePDCMilan

Customers

Incoming order

Channel Bt+150 us

Channel A t ms

t+300 us

Customer front-ends

1. Channel B delay 300 us2. Arbitration A vs B3. Request retrasmission

Reliability – Market Data consistency

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Agenda

1. Introduction





6. Sponsored Access

7. Conclusion

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Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul AugJunMay Jul

2012 2013

LSE (MIT Ex release 9) LSE (MIT Ex release 9)

TNP (MIT Ex release 9) TNP (MIT Ex release 9)

LSE Release 9 decommission

TNP Release 9 decommission

QAQALSE MIT BuildMIT Build

CDSCDS

Go live

Release 18Release 18

BIT + OB (MIT Ex release 16) BIT + OB (MIT Ex release 16)

BIT + OB + LSE (release 18)

BIT + OB + LSE (release 18)

BITTarget BIT (MIT Ex release 14) BIT (MIT Ex release 14)

QAQA

CDSCDS

Go live

OB Target

BIT (MIT release 18)BIT (MIT release 18)

BIT migrationto release 18

LSE migrationbackward

compatibile

BA BA MIT Build MIT Build QA QA

CDS CDS

LSE Target

MIT Build MIT Build QAQATQ Target

CDSCDS

LSEG convergence roadmap

Go live

MIT BuildMIT BuildQAQA

CDSCDSTQ

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Benefits of the Convergence

• Customers and ISVs have one protocol for all the equities markets costs for Customers can be reduced

• Functionalities developed for one market can be re-used for other markets better time to market & product development cost can be shared

• Each market can maintain its own market model no need to harmonize• Releases can be deployed at predefined time windows for all markets

improvement of Customers planning and budgeting• MIT has one Exchange release to maintain for all markets Implementation

cost efficiency• Same Technology Operations team can operate different markets in different

geographical locations Operational cost efficiency

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• New Business requirements - These include:o iceberg order enhancementso optional self-execution preventiono visible or hidden indicator on passive order Execution Reports.

• Group Ticker Plant Integration (GTP) – Changes will be introduced into the MIT Exchange system in order to be tightly integrated with the new version of the GTP system. Thanks to hardware accelerated components, GTP 2 will be able to disseminate tick by tick price increments (L2 market data) faster than the current ITCH market data feed.

• Group Trading Interface Integration (GTI) – Ahead of planned availability of new interface for actual use in December 2013, we need to build a connection into the matching engine. Release 8 provides this link which, when activated, will allow GTI to run initially in parallel to the existing Fix and Native Gateways.

Additional enhancements

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Additional Enhancements – continued

• Backward Compatibility of Client Facing Interfaces – In order to minimize the changes that clients have to implement, the client facing interfaces will be made backward compatible for specifically agreed gaps.

• New Operational requirements – Specific Market Operations requirements will be introduced as part of the scope of this release (for example, halting instruments across multiple days, enhance the Order Query functionality in the Service Desk tool, introducing Members Mnemonics, etc). These are intended to improve the efficiency of the Market Operations team.

• Enhancements to the MIT Surveillance system – The release will complete the de-coupling of the MIT Surveillance system from the Trading system. This will allow for greater flexibility in the implementation of future Surveillance releases.

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Agenda

1. Introduction





6. Sponsored Access

7. Conclusion

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Current Market data Architecture

London Cash Equities& Retail BondsSETS & ORB

Turquoise EquitiesLit & Dark

Millennium Exchange

Equities

Level 2-ITCH FIX-FAST(20 depth)

Level 2-ITCH

Borsa Italiana Equities & Fixed Income

MTA,MOT,ETF,SEDEX

Level 2-ITCH

User User User User

Borsa DerivsIDEM, IDEX, AGREX

Turquoise DerivsTQD & OB

SOLA

Derivs

HSVF(5 depth)

HSVF(5 depth)

User User

MTS Cash, Repo & Bondvision

Trade Impact

Bonds

SDP(5 depth)

User

DDM-Plus (Only Borsa Italiana)

EMAPI(full depth)

EMAPI5,10,20 depth)

User

Oslo Equities & Bonds

Level 2-ITCH FIX-FAST(20 depth)

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• All LSEG market data will be delivered on a single bespoke protocol

– Binary, bandwidth efficient 10 level snapshot feed (intelligent throttling)

– Binary, performant protocol for tick by tick full depth OB feed

– Binary, flexible TCP/IP protocol for recovery and reference data download

• Data delivered by load balanced IP Multicast channels

• Hardware assisted data delivery (FPGA) technology

• Hot-Hot architecture disseminating from Primary and Secondary sites

• Independent Primary and Secondary Data Centres in London and Milan

Introducing our Ticker Plant

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• Real Time incremental Level 1 Best Bid and Offer Service (Top Of the Book)

• Snapshot service for 10 levels MBO and MBP (150 ms time interval)

• Intelligent throttling: non-latency sensitive messages delivered in multi-message UDP packets whereas latency sensitive messages delivered in single message UDP packets

• Enriched reference data package delivered on the wire (unicast)

• Rich statistics package

• FTSE indices disseminated

Phase 1: live in Nov 2012

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• Launch of FTSE First – the most popular FTSE indices including the FTSE100, FTSE250, FTSE All Share and FTSE MIB calculated incrementally by the Ticker Plant on next generation technology and delivered directly to Exchange hosted customers

• market gateways on FPGA for latency reduction

Phase 1.1: live in Feb 2013

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• Turquoise equities integration

• Real Time full depth incremental service (full depth)

• New levels of technical performance (introduction of FPGA fr cliens data dissemination)

Phase 2: planned for Jul 2013

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GTP Target Architecture

Turquoise DerivsEDX & OB

Borsa DerivsIDEM & IDEX

SOLA




MTA,MOT,ETF,SEDEX

Millennium Exchange

Oslo Equities & BondsMTS Cash, Repo &

Bondvision

Trade Impact

Equities

Derivs Bonds

HSVF(5 depth)

GTP

Replay &

Recovery

Ref Data

Level 2 snapshot

(10 depth)

User

FIX-FAST

FPGA feed UserFPGA feed FPGA feed User

HSVF(5 depth)

User

SDP(5 depth)

User

Level 1 & 2MBO (full

depth)FTSE

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• Extend the coverage to Europe and US markets in a simple, normalised format

• Market wide statistics to ensure our trading community have a total view of a securities’ trading patterns and real time behaviour

• Collapse other external products into our Group market data feeds – diversifying our product to facilitate additional revenues and delivering more information to our trading community

• Provide clients a vision into our technology through real time performance statistics allowing our HFT trading community to fine tune their market interactions based on our real time performance

And this is only the beginning (Phase 3) …

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Agenda

1. Introduction





6. Sponsored Access

7. Conclusion

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Introducing the Group Trading Interface

• The Group Trading Interface (GTI) will provide our customers with a single trading interface allowing them to manage their orders across the existing LSEG cash and derivative markets.

• The project will be delivered in a phased approach as clients move across to the new interfaces in as short as time period as possible.

– Q4 2013 Phase 1- covering the LSEG cash markets (LSE, Turquoise and Borsa Italiana)

– Q2 2014 Phase 1.1- Introducing Prescriptive Order Routing strategies within LSEG markets

– Q3 2014 Phase 1.2- Expand the GTI coverage to Derivatives

– Q4 2014 Phase 2- The new service will connect into the GTP and become “market data aware”, allowing order routing strategies. FPGA technologies will be introduced to improve performance.

• Customer Benefits

– Single order entry API/Session to access all markets, driving lower technical/development costs, and/or lower third party fees from EMS/SOR vendors

– Operational efficiencies through unified symbology, common risk-controls, common reporting/reconciliation, etc.

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Market access current architecture



SOLA

Derivs


Trade Impact

Bonds



Millennium Exchange

Equities


MTA,MOT,ETF,SEDEX

Native & FIX

User

Native & FIX

User

Native & FIX

User

SAIL & FIX

User

SAIL & FIX

User

SDP

User

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GTI Market access Target architecture



SOLA

Derivs


Trade Impact

Bonds



Millennium Exchange

Equities


MTA,MOT,ETF,SEDEX

GTi

Native & FIX

User

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Agenda

1. Introduction





6. Sponsored Access

7. Conclusion

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Introducing the new Sponsored Access

• Exchange participants (Members) are allowed to provide trading access to non-exchange members through their membership. However Members must demonstrate that they have adequate risk controls measures set up to prevent these Sponsored participants (i.e. non-exchange members) from trading beyond a limit the member can be financially responsible for.

• Borsa Italiana requires Members to enforce these risk control mechanisms.

• In order to support the above mentioned requirements Borsa Italiana wants to introduce the Sponsored Access functionality which supports validations and other features required by Borsa Italiana Trading System to allow Sponsored Access trading.

• Borsa Italiana should provide to the Clients a Sponsor Portal that allows, via GUI, the configuration in real time of all the parameters needed to manage the risk control mechanism.

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New Sponsored Access validations

The following risk validations are required by Borsa Italiana:

• Price Band Validation – Prevent orders from Sponsored Users with an overly aggressive price from entering the order book and trading.

• Maximum Gross Consideration – Prevent Sponsored Users from trading beyond a threshold specified in a configurable currency (e.g. Euros, Great Britain Pounds etc). The gross consideration is the sum of all trades and value of all open orders of the current trading day.

• Maximum Order Value – Prevent orders (limit and market) with an uncommonly large order value from entering the order book.

• Maximum Order Quantity – Prevent orders from Sponsored Users with an uncommonly large order size from entering the order book.

• Order Capacity - Prevent orders from Sponsored Users with an unexpected Capacity of the order.

• Account Type - Prevent orders from Sponsored Users with an unexpected Account Type of the order.

• Restricted Instrument List – With this feature, the Sponsor User would be able to update their Sponsored Users’ restricted instrument lists.

• Maximum Message Rate – it’s requested, as technical requirement, to validate that the incoming rate injected by the Sponsored User does not exceed the Maximum Message Rate (number of transactions per second) configured by the Sponsor User.

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Sponsored Access Target solution



SOLA

Derivs


Trade Impact

Bonds



Millennium Exchange

Equities


MTA,MOT,ETF,SEDEX

Sponsored Access

Execution report

Member

Native & FIX

Sponsored

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Sponsor Access ServiceGTP

MIT Tradingand Information

SA GTWSA GTW

PostTrade

SA GTW SA GTW

Sponsored User

Drop copy

Member

NATIVE

FIX 5.0

FIX 5.0

Member Supervisor Wkst

Sponsored Access logical architecture

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Agenda

1. Introduction





6. Sponsored Access

7. Conclusion

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Conclusion

• LSEG continues to lead in trading systems performance thanks to its

Millennium IT low latency technology

• Performance is relevant, however other aspects can make the difference between success and failure. We have seen only some of them:

1. Functionally rich systems to support the launch of new products2. Top reliability 3. Architecture flexibility4. Market data consolidation (GTP)5. Market access standardization (GTI & GSPO) 6. Efficient development and operational models

• LSEG is active on each one of these fronts as it is on Performance to continue to improve the quality of our services

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LSE The focus beyond Low Latency