Following the tragic events of 9/11, the network outages in the financial services sector drove a key realization about the resilience of U.S. markets. Networks that market participants had relied upon for decades to route orders and access data were suddenly down, bringing to light new vulnerabilities in market connectivity.
The industry realized their data and trading connections weren’t as diverse as they needed to be, and the market needed a centrally managed network infrastructure, more resilient and designed to avoid connectivity interruptions. With that in mind, exchanges were asked to manage core connectivity services to help facilitate faster service restoration in the event of future disasters. From these roots came the Secure Financial Transaction Infrastructure (SFTI®), and the evolution of market connectivity began.
While the initial motivation for exchange-managed connectivity was focused on resiliency, that connectivity has evolved in response to changing market dynamics. As a global financial markets infrastructure provider, ICE Data Services is at the center of connectivity evolution. Today, we’re a leader in industry efforts to enhance market data, analytics and connectivity, which involve expanding our connectivity network to include secure, resilient and low latency access to more than 150 global markets and over 600 market data and news sources so that we’re able to meet the needs of the current market.
The Five Trends
1. Financial services providers are facing significant cost pressures
As the business environment becomes increasingly competitive and regulatory mandates increase capital requirements, firms are evaluating every potential opportunity for cost savings. Many firms are still accessing data content and trading venues through multiple connections, which often result in increased operational complexity and cost. In response, the comprehensive connectivity offering at ICE Data Services was established to provide access to global trading venues and data feeds to help firms simplify market access and reduce the connections and expenditures required.
2. Low latency infrastructure has moved from a differentiator to a necessity
Strong order fill rates play a key role in a firm’s ability to remain competitive in today’s electronic markets. Many market participants, initially in the equities markets and now increasingly in derivatives markets, are focusing on speed and low latency connectivity, enabling them to consolidate data and execute orders quickly on behalf of their customers. This trend has driven the evolution of low and ultra-low latency connectivity, using wireless connections, new and shorter circuit paths, new technology switch and distribution hardware, direct market access, and shared or dedicated infrastructure hosting solutions for data access and order routing.
3. New trading algorithms across global markets have resulted in new connectivity requirements.
Today’s trading strategies are becoming increasingly global. For example, trading algorithms programmed to find the best price were once restricted to searching local markets but are now able to scan global exchanges. Thanks to expanded market connectivity, the ability to arbitrate between global markets has become a business advantage. A global connectivity provider like ICE Data Services with a large footprint across North America, Europe and Asia Pacific also offers firms the ability to “turn on new markets” and test new strategies before committing to any additional infrastructure. This capability can accelerate time to market for new trading initiatives and strategies.
4. There’s an increased need for market data to form a consolidated view of fragmented markets
The need to consolidate and distribute a view of global markets has increased in recent years. The move to electronic trading has turned exchanges that were previously regional into global markets with real-time access. One outcome of globalization, divergent regulation and new regulatory rules has been the fragmentation of markets, which can drive informational asymmetries. Connectivity has accordingly expanded to offer access to more market data, news sources and trading venues to give participants a consolidated market view.
5. Regulatory obligations to demonstrate operational resilience and manage risk have increased
Regulators are requiring ever-higher operational IT standards from firms to mitigate risk – for themselves, their customers and for the markets as a whole. Meeting these requirements involves rigorous InfoSec processes, operational controls, risk controls and an extremely high level of due diligence, among other time-consuming efforts. As a result, “exchange-grade” connectivity is playing an important role when it comes to minimizing the operational risk associated with connectivity and hosting. As a global exchange operator, we work with regulators and policy makers around the world to ensure the reliability of our operations, strong market supervision and global compliance practices.
Today’s Connectivity Combines Low Latency with Resiliency
What began as a network designed to offer fully diverse, resilient access has grown to encompass a range of connectivity options designed to meet the rising demand for low latency connectivity and increased backbone capacity to transport larger volumes of content.
To meet these needs, ICE Data Services has combined the original SFTI network with the legacy 7ticks network and hosting businesses that ICE acquired through the acquisition of Interactive Data Corporation in 2015. Taken together, the combined solution offers market participants:
As we continue to evolve the future of market connectivity, our focus is on how we can best meet the needs of market participants – banks, broker dealers, market makers, prime brokers, futures commission merchants, proprietary trading shops, systematic trading hedge funds, asset management firms, ISVs and other service providers.