Communications of the ACM

ter the systems need WAN links. Traditionally HFT shops ran two sets of links, as shown in Figure 3: a high-throughput path and a lower-throughput fast path. For the high-throughput path, private point-to-point fiber— 10GbE (gigabit Ethernet) is preferred. For the fast path, each location allows for options. In the New York metro area, both millimeter and microwave solutions are available. These technologies are commonplace for HFT fast-path links, since the reduced refractive index allows for lower latency.

Feed handler. The feed handler is often the first bit of code to be implemented by an HFT group. As shown in Figure 4, the feed handler subscribes to a market-data feed, parses the feed, and constructs a “clean” book. This is traditionally implemented on an FPGA and has now become a commodity for the industry ( http://www.exegy.com). Most feed handlers for U.S. equities are able to parse multiple market-data feeds and build a consolidated book in less than 25 microseconds.

Tickerplant. The tickerplant is the system component responsible for distributing the market-data feeds to the internal systems based on their subscription parameters (topic-based subscription), as shown in Figure 5. In these scenarios, the tickerplant is like a miniature version of Twitter, with multiple applications subscribing to different topics (market-data streams).

In addition to managing topic-based subscriptions, advanced tickerplants often maintain a cache of recent updates for each instrument (to catch up subscribers), calculate basic statistics (for example, the moving five-min-ute volume-weighted average price), and provide more complicated aggregate topics (for example, the value of an index based on the sum of the underlying 500 securities).

Low-latency applications. In my experience, most high-frequency algorithms are fairly straightforward in concept—but their success is based largely on how quickly they can interact with the marketplace and how certain you can be of the information on the wire. What follows is a simple model (circa 2005), which required a faster and faster implementation to continue to generate returns.

To begin, let’s review some jargon.

tions leads to a change in large-scale exchange-traded funds (ETFs). The value of an ETF cannot be greater than the sum of its components (for example, the SPDR S&P 500), so the underlying stocks must change. Therefore, the state of employment in London will affect the price of the Dollar Tree (DLTR), which does not have a single store outside North America—it’s a tangled web.