Exchange Platform Review

Version: 0.2Date: 10 Nov 2008Status: Draft for Discussion

The following is a review of the services, performance and technology of the BATS, Chi-X and Currenex platforms. The purpose of review is better understand the platforms and possibly generate ideas for the technology renewal in IEB.

Platform Summary

• BATS• US Cash Equities / EU Cash Equities• ECN launched in 2006, recently launched in EU• The focus of BATS is low latency at a fraction of fees of the US Regional Exchanges

• Chi-X • Chi-X is MTF in EU, it is owned by Instinet. Chi-X Canada has recently launched.• Chi-X trades EU Cash Equities• Instinet has other global ECNs, it is not known if these run on the same or different platforms

• INET• The INET ECN was bought by Nasdaq OMX in 2005 • Nasdaq OMX has an ECN for US Securities• Nasdaq OMX Europe is for EU Cash Equities

• Currenex• FX Spot, Forwards, Swaps, Money Markets Deposits• Currenex is a multi-bank portal supporting Executable Streaming Prices and RFQ to retail clients

Limitations of the Review

• The review is based on internet-based research, rather than direct contact with the Exchanges. The accuracy of materials is not guaranteed.

• The platforms a loose in their definitions, particularly in the area of latencies• Little technical information is in the public domain on these platforms• The US Patent website was searched for patents for each platform, but this should not be regarded as conclusive

Exchange Platform Review - Summary

Exchange Platform Review - Background

Vendor

Id# Requirement BATS Chi-X Europe INET Currenex Notes

1 Ownership Group of banks and brokers *1

Instinet (Subsidiary of Nomura)

Nasdaq OMX State Street

Instinet, through its subsidiaries, operates a wide array of ATS platforms around the world, includingCBXSM in the United States, JapanCrossingSM in Asia and Chi-X® in Europe, Canada and, soon, Australia.

3 Products US & EU Securities EU Securities US SecuritiesFX Spot, Fwd, Swap FX, Loans & Deps

Currenex has 70 banks providing liquidity to Executable Streaming Prices (ESP) pool. Currenex supports “all possible” currency pairs.

4 Locations US, Europe Europe US, EU US Currenex does not have any data centers in Europe

5 Market Model Order Driven Order Driven Order Driven ESP & RFQ Currenex support different liquidity pools by size.

6 Markets TradedUS, UK, French, German, Dutch, Belgium

8 European Markets 14 EU Markets Global BATS went live in Europe in Oct 2008

7 Regulatory Regime ECN (US), MTF (EU) MTF ECN (US),

MTF(EU) OTC

8 Market Share 10% (US Market) 22% (FTSE100) No info15% (of multibank e-FX market)

Currenex daily volume is $100bn.

*1 Ownership group of Citi, Credit Suisse, GETCO, Lehman Brothers, Lime Brokerage, Morgan Stanley, Merrill Lynch and Wedbush.

Vendor

Id# Requirement BATS Chi-X Europe INET Currenex Notes

9 Matching Algorithm

Price-Display-Time Price-Time Price-Time Not Applicable

10 Anonymity Full Full Full Name Give-up

11 Order Book Central order book

Central order book

Central Order Book ESP or RFQ Currenex does support different order

types

12 Post-Trade Services FIX FIX No Info FIX, API

13 Clearing Partner EMCF (in EU) EMCF (in EU) EMCF (in EU) Not Applicable

14 Market Data Free Free No info No Info BATS publish full depth of book

15 Other Services

Dark Scan, CYCLE smart order routing and Dark Match

Off Exchange Reporting,Sponsored Access

No Info

White label, Prime Brokerage, Supports mini-ECNs

BATs’ Dark Match is an pricing program for larger trades. Additionally Dark Scan provides order types to reach off-exchange liquidity pools.

17 Patents/Trade marks No Info Intelligent

Order BookYes, see appendix B

CX OneOrder, CX SmartOrder CX SmartOrder is a algo trading tool.

18 Co-location Yes Yes Yes Yes

Exchange Platform Review – Exchange Services

Exchange Platform Review – Latency & Throughput

Vendor

Id# Requirement BATS Chi-X Europe INET Currenex Notes

19Average Internal Latency (microsecs)

400 890 250 < 1ms to order book

BATS timing is “the complete round trip from firewall to FIX handler to matching engine and back”. On average, the time between an order hitting BATS’ firewall and the platform sending an acknowledgement of execution is 400 microseconds

20Average External Latency(milliseconds)

1 – 3 2 No Info No Info

21Messages per sec(Average)

34,000 30,000 No Info 5,000Currenex numbers are from 2005.This figure is for Chi-X Canada, not EU.

22Messages per sec(Peak)

166,000 75,000 250,000 11,000Currenex numbers are from 2005.INET numbers are from 2006.

23Messages per day(in millions)

100m No Info No Info 25m

23 Trades per day No Info No Info No Info 10,000 to 25,000

24 Order Throttling No Info No Info No Info None

25 Market Data Throttling None No Info No Info None Currenex quotes are not throttled. BATS

publishes the full depth of book.

Exchange Platform Review – Connectivity & Platform

Vendor

Id# Requirement BATS Chi-X Europe INET Currenex Notes

26 Technology Source

Internally developed

Internally developed based on CBX

Internally developed from Island ECN

Internally developed

Chi-X technology and INET platform is believed to have been sourced from the Island ECN (this is not documented)

27 Client Connectivity API

FIX/FASTBATS PITCHBATS TOP

FIX, CHIXMDFIX or OUCHITCH/DROP

FIX, Java API BATS PITCH is a derivative of the ITCH market data distribution standard

28 Client Trading GUI None None None

Web based Applet (Java Swing)

29 ISVs No Info

Bloomberg, Reuters, Fidessa, , RTS, GL Trade, etc

No Info Cognotec

30 Operating System SUSE Linux Linux No Info Red Hat Linux Currenex document is from 2005

31 Hardware HP Blade with EMC SAN HP No Info HP and Sun

32 Architecture

Distributed Order handlers feeding central Matching Engines

Matching Engine with real-time failover

No Info

“Server farm of Matching Engines running on commodity HP hardware”

Chi-X does not deploy hardware on client sites.

33Programming Languages and Frameworks

C++ C++ No info Java & J2EE

Vendor

Id# Requirement BATS Chi-X Europe INET Currenex Notes

33 Client Network BT, Savvis, STFI, Fixnetix, etc

Atrium, BT, Colt, Savvis, etc

No Info No Info

34 Data Centre Provider Savvis Equinix No Info No Info

35 Data Centre Location New Jersey London,

Frankfurt No Info NY, London, California INET uses a MPLS backbone

36 Client Bandwidth (minimum) 10 – 25 Mbps 10Mbps No Info 1Mbps

Bats says “Members using the same bandwidth to both receive quotes and transmit orders should also expect their orders to be slightly delayed.”

37 Resilience No Info

“Simultaneous mirrored backup site” and “fully redundant communication links between sites“

Hot-hot DR

Real-time replication between data centres

Exchange Platform Review – Data Centre and Network

APPENDICIES

Appendix B: Exchange Comparison – References

Batshttp://www.batstrading.com/news_article_pdf/IMD%202007-07-16%20BATS%20slashes%20bandwidth.pdfhttp://www.batstrading.com/news_article_pdf/Forbes%202007-05-21%20Maverick.pdfhttp://www.batstrading.com/bats_performance_study.pdfhttp://www.batstrading.com/features/bats_trading_Latency.pdfhttp://www.marketwatch.com/news/story/instinet-europe-set-begin-trading/story.aspx?guid=%7BC0DD56FC-2EB5-4EBB-8DDE-A6A96C0C96D2%7D&dist=hpprhttp://www.batstrading.com/bats_performance_study.pdfhttp://www.wallstreetandtech.com/resourcecenters/low-latency/showArticle.jhtml?articleID=199702208http://www.batstrading.com/news_article_pdf/NEWSWEEK08-09.pdfhttp://www.batstrading.com/subscriber_resources/BATS_Connectivity_Manual.pdfhttp://www.automatedtrader.net/algo-trading-news-1496.xhtm

Chi-Xhttp://www.sii.org.uk/SII/WEB5/sii_files/Events/CPDseminars/CPD185.ppt?bcsi_scan_89234B1A2594B463=0&bcsi_scan_filename=CPD185.ppthttp://www.instinet.com/about/releases/Chi-X_Canada_Launch_Date_.pdfhttp://www.chi-x.com/Faster_Performance_capacity.htmhttp://www.nomuraholdings.com/news/nr/europe/20080926/20080926.pdfhttp://www.nomuraholdings.com/news/nr/europe/20081006/20081006.pdfhttp://findarticles.com/p/articles/mi_m0EIN/is_2008_April_7/ai_n25126758/pg_1?tag=artBody;col1http://www.chi-x.com/news/Chi-X%20selects%20Equinix.pdfhttp://www.computeractive.co.uk/computing/analysis/2226241/glitch-adds-pressure-lse-4225245http://www.reuters.com/article/pressRelease/idUS125628+17-Sep-2008+BW20080917

INEThttp://www.nasdaqomx.com/whatwedo/trading/europeanmarket/http://faculty.babson.edu/rdavies/MiFID_July2008_Davies15.pdfhttp://www.nasdaqomx.com/whatwedo/trading/europeanmarket/http://www.advancedtrading.com/exchanges/showArticle.jhtml?articleID=206904732http://www.advancedtrading.com/exchanges/showArticle.jhtml?articleID=206904732http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20081022005096&newsLang=enhttp://www.marketwatch.com/news/story/chi-x-says-market-share-ftse/story.aspx?guid=%7BBDB682CD-5510-4580-89AE-DEDE2E94CC67%7D&dist=TQP_Mod_mktwNhttp://whitepapers.zdnet.co.uk/0,1000000651,260130178p,00.htmhttp://linux.slashdot.org/article.pl?sid=07/12/14/2312210

Currenexhttp://www.financetech.com/feed/showArticle.jhtml?articleID=188500215http://fxtrades.currenex.com/pdfs/news-oct-2005_latency_issue.pdfhttp://www.euromoney.com/Article/1924995/Article.htmlhttp://www.dealingwithtechnology.com/public/showPage.html?validate=0&page=dwt_login&url=%2Fpublic%2FshowPage.html%3Fpage%3D442123http://en.wikipedia.org/wiki/Currenexhttp://www.currenex.com/pdfs/PR_CX_OneOrder.pdfhttp://www.eweek.com/c/a/Linux-and-Open-Source/Currency-Firm-Trades-on-Open-Source/http://www.e-forex.net/Files/surveyreportsPDFs/Celent%20FX%20report.pdfhttp://www.linkedin.com/pub/0/8b9/b28

APPENDIX C: Exchange Comparison – Patents

• Currenex

Patents: United States 0162655; United States 0162657; United States 0162656; United Kingdom

GB2379063; United Kingdom GB2392525; United Kingdom 390726; United States US6807635B1.

• Instinet

http://patft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.htm&r=0&f=S&l=50&d=PTXT&RS=Chi-x&Refine=Refine+Search&Refine=Refine+Search&Query=instinet