Imagine a global fabric that connects all financial and capital markets, linking buyers and sellers to each other through one large, secure networking pipe. Imagine that this fabric can deliver the speeds needed for order processing in an industry where microseconds can make the difference between success and failure. And now imagine that this network can also interconnect into on-premise IT infrastructure, or to third-party data centre assets for on demand compute capacity, and you will have some sense of what CenturyLink is looking to deliver to financial firms with IQ+ Financial, a solution made available to Canadian customers this summer.
According to Roji Oommen, managing director, CenturyLink Financial Services, Business Technology Solutions, the new connectivity platform addresses three key industry requirements. The first concerns the digitization of the capital markets business: “modern markets have become overwhelmingly electronic; so it’s algorithm against algorithm, and liquidity has moved to a number of locations. If I’m trading a security, the best price for that security could be at any one of several locations,” he explained. At the same time, regulators have mandated that brokers ensure their customer has the best price, regardless of where that exists. This means a broker needs to be able to connect into a number of different exchanges.
The second industry requirement has to do with data volumes: since trading is electronic and computers can process data faster than humans, “the volume of data has gone up exponentially. If you look over the past decade, data volume has increased 20 or 30 fold and that volume is in fact outpacing Internet growth,” Oommen noted. “If you are processing North American markets at US market open, you are somewhere in the neighbourhood of 100 Gigabytes per second.” This means bandwidth need is intense, and, as a result, the cost for connectivity is very high. And a third consideration is profitability, which has had an impact on the timing of CenturyLink’s new service launch: as Oommen explained, market profitability began to decline three to four years ago as an offshoot of the financial crisis and the increased regulatory pressures that followed – meaning new opportunity for CenturyLink to step in with a supporting services.
For the individual Canadian brokerage house, costs in terms of fees and maintenance for connecting to multiple sites is on the rise. Oommen estimates that a typical firm that is trading a cross list of Canadian securities would have to connect to about 20 different locations – such as the NISE, NASDAQ, several dark pools (private trading forums), options markets and liquidity vendors. Add in connections to back up locations, dictated by common sense and the regulators, and the number of locations increases to 40. “All of these connections are very high speed and the data rates are growing: options traffic doubles every eighteen months, so if you have a 10 Gig circuit today, in 18 months, you will need to double that,” he argued. In addition to bandwidth fee increases, are the costs associated with managing the sophisticated connectivity required for latency sensitive applications. Oommen pointed to and number of considerations in in routing technologies, such as the way orders route, the fibre distance between one location and another, and switching hardware as examples of issues that add complexity and cost.
IQ+ Financial is designed to simplify these challenges. A secure and scalable solution for Canadian capital markets firms, Oommen likens the service to “cable TV, where you can access multiple channels from a single line, and depending on your authorization, watch any channel at any time – or all of them at once.” Instead of 40 circuits to manage, customers link once with CenturyLink, which manages capacity and can do this at massive scale, passing on the benefits of economies of scale to customers. While operational cost savings available through the new solution depend on a firm’s trading needs and bandwidth costs – which vary from customer to customer – Oommen noted “our goal was to achieve a 60 percent plus savings for very large environments. So the savings are very substantial.” IQ+ Financial is available in a variety of packages that feature a range of bandwidth options, starting at 10 gigabytes, and rising to 40 and 100 Gig for more active customers. “What really matters in this space,” he said, “are the applications and the data. Everything else is just very complicated, expensive plumbing. I want to lower the cost of that infrastructure as much as possible, while at the same time ensuring that the customer has maximum availability, resiliency and uptime.”
Essentially a high performance, purpose built connectivity platform, the CenturyLink service has been developed through optimization of fibre pathways between buyers and different market locations: IQ+ provides Canadian firms with real time access to over 250 market data feeds. In Canada, CenturyLink does not own its own fibre infrastructure, but through relationships with many of the key trading firms in the latency sensitive markets has researched what is the fastest fibre between different endpoints used in Canada – data centres, clients, trading partners and execution venues worldwide – and armed with knowledge of the fastest paths, has leased assets where appropriate. To address the regulators’ requirement for absolute resiliency, the company also built a second “B” network using completely isolated fibre paths and infrastructure supported by different power grids to create geographic and power diversity. According to Oommen, most customers connect to the “A” and a “B” networks to ensure redundancy and can move applications and data back and forth across these.
CenturyLink’s narrative on the IQ+ Financial solution includes the company’s other infrastructure assets – connection to over 60 data centres that are heavily concentrated in major financial centres around the world, which are available to customers looking for additional compute resources. Outlining the advantages of simultaneous use of IQ+ Financials and CenturyLink data centre, Oommen argued that the customer may be even closer to the data than would be the case through use of the client’s own facility and see a latency improvement as a result. Similarly, the customer could create trading partners with others in the data centre that are just a physical cross connect away, obviating the need for complicated order pathing. And a final benefit would be use of elastic resources – electronic trading markets are very volatile and network customers potentially even more prone to bursting, rather than overprovisioning processing and storage capacity.
But the company has been careful to separate the service, delivering it as a distinct network offering, as a means of providing customer choice. While links to global data centre assets are set (at least for now), CenturyLink is also focused on supporting customers who may prefer to rely on their own on-premise infrastructure. In Oommen’s view, this choice falls from the sophisticated compute infrastructure that many financial firms have in place. “In the financial services business,” he explained, “there is what is called in evolutionary theory ‘the red queen effect’ where everyone is running as fast as they can to maintain the same relative position. The markets have become extremely fast and most of the trading mechanisms are sensitive to latency so there is a very rapid refresh cycle.” Additionally, some CenturyLink customers are sensitive to the need for processing in nano seconds and have exotic technology with very fast chips: these are not likely interested in CenturyLink compute assets but would benefit from direct network deployment. “We think the fact that we give you choice in terms of how much you want to outsource is compelling,” Oommen added. A final reason for separation may have more to do with CenturyLink strategy than customer requirements: this month, the company confirmed year long rumours that it is looking for a buyer for its data centre assets, a situation that demands renewed emphasis on customized solutions which rely on its key network resources and expertise.
CenturyLink has been optimizing networks for trading markets around the world for many years, and Oommen described extension into Canada as just another step in that process. Canadian trading markets are very mature, very liquid, and there is lots of cross border trading between Toronto and New York, providing solid opportunity for the IQ+ service expansion. The “time is right in Canada,” Oommen remarked, and to prepare for it, CenturyLink has have upgraded the physical infrastructure that runs the network and added new features and new markets. As a measure of solution uptake, Oommen noted that most of the major liquidity providers in major western European markets – 19 of the top 20 securities trading firms – are CenturyLink customers. Time will tell in Canada.
