nasdaq connectivity presentation

Nasdaq Connectivity & Algorithmic Trading, 2013. S. Gurung and C. Lin

By: Surya Gurung and Cheng-Fang Lin

NYU-Poly: FRE 7251 Algorithmic Trading & High Frequency Finance

Dec, 16th 2013

Source: www.engadget.com

NASDAQ Connectivity &

Algorithmic Trading

Brief History of NASDAQ.

NASDAQ Connectivity.

Algorithmic Trading.

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Source:

Nasdaqtrader.com Nasdaq Connectivity & Algorithmic Trading, 2013. S. Gurung and C. Lin

Nasdaq & Its History:

Nasdaq was developed by the National

Association of Securities Dealers (NASD) and

began trading in 1971.(Freedman, 23)

When Nasdaq began trading in Feb 8th 1971, it

was the first electronic stock market in the

world. (3)

It connects hundreds of dealers who are

allowed to make markets in a particular stock.

(Freedman, 23)

3 Nasdaq Connectivity & Algorithmic Trading, 2013. S. Gurung and C. Lin

Source:

Nasdaqtrader.com

Nasdaq & Its History:

Nasdaq OMX group owns and operate 26 markets, 3 clearing houses, and 5 central securities depositories over. (2)

In 2000, Nasdaq began to separate from NASD to become a public company. (3)

In 2007, Nasdaq purchased Scandinavian exchange group called OMX to become The NASDAQ OMX Group. (2)

4 Nasdaq Connectivity & Algorithmic Trading, 2013. S. Gurung and C. Lin Source:

Nasdaqtrader.com

Fig 1. Source:Nasdaqomx.com

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Nasdaq Connectivity:

Trading Access

Equity Protocols

Algo Testing Facilities


Nasdaqtrader.com

Trading Access: Any firms who needs the lowest latency data feed,

NASDAQ OMX offers direct access to its U.S. equity and derivatives data feed products from its U.S. data centers.

They can connect to Nasdaq U.S. data centers via

1. Co-Location

2. Wireless Connectivity

3. Extranets

4. Direct Connectivity

Investors and Traders can also access to Nasdaq data feeds through more than 100 authorized market data redistributors. (7)


Source:

Nasdaqtrader.com

Trading Access:

Co-Location?

It is opportunity provided by an exchange to high frequency firms to place their trading computers directly next to the exchanges computers in their data centers for some fee.

Speed?

10G, 10G Ultra, and 40G Ethernet available for all Nasdaq OMX order entry protocols and data feeds. (8)

Reduces round-trip latency by an average of 2-3 microseconds.(9)


Nasdaqtrader.com

Trading Access:

Wireless Connectivity:

1. Metro Millimeter Wave (MMW) network

connects customers in Nasdaq data centers to traders in New York Metro trading hubs in 40% faster than any fiber based network.(10)

2. NASDAQ OMX, in conjunction with CME Group, recently started providing a new wireless connectivity offering providing a direct, low-latency microwave route between Carteret, NJ, and Aurora, IL, for delivery of select NASDAQ and CME data up to 36% faster. (9)

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Source:

Nasdaqtrader.com


Trading Access:

Wireless Connectivity:

MMW network.

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Source:

Nasdaqtrader.com


Source: www.nasdaqtraser.com

Latency; 201 microseconds

Latency; 197 microseconds


Source:

Nasdaqtrader.com Source: www.floatingpath.com

Trading Access:

Extranets & Direct Connects:

Firms outside the Nasdaq OMX data

centers can connect to Nasdaq OMX data

centers through approved third party

Extranets or Direct Connect networks

providers.

The monthly co-location fees for the

Nasdaqs data center in Carteret, NJ

(where all the trading actually happens)

run up to $14,000 per month. (6)

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Source:

Nasdaqtrader.com


Equity Protocals:

Financial Information eXchange (FIX)

FIX Lite

OUCH

Routing and Special Handling (RASHport)

Nasdaq Information exchange protocol (QIX)

Computer-to-Computer Interface (CTCI)

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Source:

Nasdaqtrader.com


Equity Protocals:

FIX

1. Created by Fidelity and Salomon Brothers in

1992 to communicate electronically between

buy and sell sides. (Freedman, 247)

2. It is a vendor-neutral standard message

protocol that defines an electronic message

exchange for communicating securities

transactions between two parties. It is free and

open standard format used today by most of

U.S. firms in the options securities business.(14)

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Source:

Nasdaqtrader.com


Equity Protocals:

FIX supports message for order entry, cancel,

and modify for

1. US Equity trading

2. Option trading

3. Order routing system ACES

4. Trading reports

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Source:

Nasdaqtrader.com


Equity Protocals:

OUCH

1. This protocol allows customers to quickly enter orders into and receive executions. OUCH subscribers and their software developers can integrate NASDAQ into their proprietary trading systems or build custom front-ends to NASDAQ systems.

2. OUCH accepts limit orders from system subscribers, and if there is a matching order, they will execute. Non-matching orders are added to the Limit Order Book, a database of available limit orders, where they are matched in price-time priority. OUCH only provides a method for subscribers to send orders and receive status updates on those orders. (18)

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Source:

Nasdaqtrader.com


Equity Protocals:

RASHport

1. RASHport allows subscribers to enter orders,

cancel existing orders and receive executions while

providing smart order routing and special handling

features. RASHport also provides advanced

functionality and the ability to process sophisticated

order types including discretion, random reserve,

pegging and routing. (15)

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Source:

Nasdaqtrader.com


Equity Protocals:

CTCI

It is a method by which NASDAQ subscribers can enter transactions, such as NASDAQ Market Center

orders and trade reports, from their computer systems

to NASDAQ's computer systems without using a

NASDAQ Workstation. CTCI interface is based on the

Common Message Switch protocol. (16)

QIX

It is an efficient protocol that allows automated, real-

time trading. QIX offers reliability in placing orders and

quotes in the NASDAQ system, while providing

improved throughput and reduced latency. (17)

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Source:

Nasdaqtrader.com


Algorithmic Trading:

It is a computarized trading using proprietary

algorithms.

Speed (fastest boat), reliability and data quality

are essential in algorithmic trading.

That is why, Nasdaq Connectivity is very

important.

Remember, it is the Nasdaqs connectivity issues

which lead to creation of Datek and eventually

Algorithmic Trading.

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Nasdaqtrader.com


Nasdaq Shutdown 3 hours:

Aug 22, 2013

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Source:

Nasdaqtrader.com


Source: CNN Money

Algo Testing Facility:

NASDAQ provide next-generation Algo testing

environment offering a market-wide equities

testing platform that provides a comprehensive

testing universe well beyond just the NASDAQ

market systems.

The Algo Test Facility will provide High

Frequency traders with a safe environment to

rigorously test and calibrate their algorithmic

strategies by replaying and interacting with real

historical market data. (19)

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Source:

Nasdaqtrader.com


Conclusion:

Nasdaq changed the stock trading world by inventing the first electronic trading system. Even though, Nasdaq has made the electronic trading market more robust and advanced by continued technological innovation, I think lots of challenges still remains unsolved. Periodic news of flash crashes because of various algorithmic glitches such as one in Aug 22nd, 2013 could cause investor to loose their confidence in electronic trading markets.

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Nasdaqtrader.com


References: 1. Freedman, Roy S. Introduction to Financial Technology. Academic

Press/Elsevier, 2006. Print.

2. What is Nasdaq? Nasdaq OMX. Retrieved from http://www.nasdaqomx.com/aboutus/company-information/whatisnasdaq on 12/14/2013

3. Nasdaq. Wikipedia. Retrieved from http://en.wikipedia.org/wiki/NASDAQ on 12/14/2013

4. Traders. Nasdaq OMX. Retrieved from www://www.nasdaqtrader.com

5. Nasdaq OMX Timeline. Nasdaq OMX. Retrieved from http://www.nasdaqomx.com/aboutus/company-information/timeline on 12/15/13

6. Mid-Week HFT Primer: Co-Location. Retrieved from http://www.floatingpath.com/2013/07/03/mid-week-hft-primer-co-location/ on 12/14/13

7. Market Data Vendors. Retrieved from http://www.nasdaqtrader.com/Trader.aspx?id=MarketDataVendors 12/13/13

8. Low Latency Connectivity. Nasdaq OMX. Retrieved from http://www.nasdaqtrader.com/content/Productsservices/trading/CoLo/LowLatencyFS.pdf 12/14/13


Source:

Nasdaqtrader.com

9. Nasdaq OMX Co-Location. Nsdaq OMX. Retrieved from http://www.nasdaqtrader.com/Trader.aspx?id=colo on 12/14/13

10. Wireless Connectivity: Metromillimeter Wave Offering. Nasdaq OMX. Retrieved from http://www.nasdaqtrader.com/content/Productsservices/trading/CoLo/millimeter.pdf on 12/14/13

11. Margaret Rouse. RASHport. Retrieved from http://searchfinancialsecurity.techtarget.com/definition/RASHport on 12/14/13

12. Margaret Rouse. QIX. Retrieved from http://searchfinancialsecurity.techtarget.com/definition/QIX on 12/14/13

13. Margaret Rouse. CTCI. Retrieved from http://searchfinancialsecurity.techtarget.com/definition/CTCI

14. FIX. Nasdaq OMX. http://www.nasdaqtrader.com/Trader.aspx?id=FIX on 12/14/13

15. RASHport. NasdaqOMX. Retrieved from https://www.nasdaqtrader.com/Trader.aspx?id=RASH on 12/14/13


Source:

Nasdaqtrader.com

16. CTCI. Nasdaq OMX. Retrieved from

https://www.nasdaqtrader.com/Trader.aspx?id=CTCI on 12/14/13

17. QIX. Nasdaq OMX. Retrieved from

https://www.nasdaqtrader.com/Trader.aspx?id=QIX on 12/14/13

18. OUCH. Nasdaq OMX. Retrieved from

https://www.nasdaqtrader.com/Trader.aspx?id=OUCH on 12/14/13

Nasdaq Testing Facilities. Nasdaq OMX. Retrieved from

https://www.nasdaqtrader.com/Trader.aspx?id=TestingFacility on

12/14/13

19. Chuck and Campos. Nasdaq market paralyzed by three hour

shutdown . Retrieved form

http://www.reuters.com/article/2013/08/22/us-nasdaq-halt-tapec-

idUSBRE97L0V420130822 on 12/14/13


Nasdaqtrader.com

nasdaq connectivity presentation

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