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Using instrument identifiers to reduce latency

At a reception with Asia/Pac exchanges hosted by BT yesterday, one of the topics of discussion among the attendees was, as so often, that of latency.  While investment firms, exchanges and vendors have spent massive amounts of effort focusing on the technology involved - the "T" in "IT" - thinking is now moving forward around the information that is being used - the "I" in "IT".

Investment firms have to carry out a massive amount of technical transformation and translation, between network protocols, messaging protocols that sit on top of the network protocols, and the data that is inside the messages themselves.  Everything that needs transformation and/or translation adds to latency.  That's one of the reasons why investment firms push for the greater use of standards such as the FIX Protocol: the more organisations that use FIX, the less the time wasted in translation and therefore the lower the latency.

While most attention has been paid to the technology, the data content being transported has been taken as a "given" that can't be changed.  However, standardising data elements such as instrument identifiers means that the data being transported doesn't have to be translated and interpreted.  It reduces the amount of processing required when monitoring high-speed market-moving data and enables algorithms to respond faster to data-driven opportunities.  It therefore reduces latency and reaction time.

Investment firms are making changes to their internal data in order to standardise their use of instrument identifiers.  They rarely announce this to the outside world: why tell your competitors another way that you're using to reduce latency?  They are working from the inside out, applying a single standard for instrument identifiers across more asset classes, and then getting their clients and service providers and data providers to use that same standard.  They are using standards to increase operation efficiency and reduce latency.


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