In pure engineering terms, latency is the time between an action and the results of that action. In the processing world, latency can be the time between an input action and the displayed results. In networking, latency is a synonym for delay or the time it takes a datagram to move from one network device to another. In the world of the internet, Latency is measured in round-trip time. There are several factors that can contribute to latency such as processing speed, DSP (Digital Signal Processing) time, routers changing the packet headers, traffic delays, bottlenecks and overall network performance/speed.

In the financial world, business results are measured by the bottom line. Contributing to the bottom line is the number transactions processed per minute (TPM). In computing we measure milliseconds and nanoseconds. However, if you take several thousand transactions per minute, in reality, transactions are processed in nanoseconds. Each transaction, whether it be a bank card authorization, a stock trade or other financial transaction must process an error free and in many cases in real-time with virtually zero latency. Global investment banks, stock exchanges, traders and hedge funds stand to gain the most from real-time market data and processing of that information.

Transactions Per Second (TPS)

In order to benchmark transactions, the Transaction Processing Performance Council (www.tpc.org) was formed and defined the original TPC-A benchmark formula. Today, for benchmarking OLTP (Online Transaction Processing) by simulating a brokerage firm, the council has developed TPC-E. This model simulates a brokerage house where customers generate transactions related to trades, account inquiries and market research. Each transaction is then acted upon by the simulated brokerage firm that issues orders on behalf of those customers based on real-time market data and updates relevant account information. This draft, now in version 1.0, was developed to replace the older TPC-C (currently the only benchmark with published data) to more closely model the securities business. The TPC-E model is based on wholesale operations. Using the TPC-C models, the top tpmC is 4,092,799 with the average amongst the top 10 being 1,965,221 tpmC. Even a little latency here would be detrimental if it were a real financial institution.

LINK Interchange Network, Ltd., located in the UK, processes up to 12,000 shared online transactions over 36,000 ATMs throughout the United Kingdom on behalf of 47 of the UK’s largest financial institutions, primarily banks. And SETS (The London Stock Exchange electronic order book) exceeded 500,000 per day in March of 2007, with the total value traded for the month represented 11.2 million trades for a total of 193.5 billion pounds.

Today, a simple PC can process about 8,000 transactions per minute — more than one of the largest US bank’s total traffic in 1970, according to Microsoft®. According to Finextra Research (www.finextra.com), HSBC, with over 125 million customers (1/5 of whom are online customers) processes 100 million transactions daily and moves approximately $1 trillion dollars in funds in that same daily period.

The NYSE and NASDAQ trade 2 billion shares each day with each transaction representing 3-400 shares each. This equates to roughly six million transactions per day, compared to 2 million just 5 years ago. This is due in large part to algorithmic trading which is HIGHLY sensitive to latency.

A representative from Visa International that chaired the International Payments Summit stated that they have laid 9 million miles of cable to support their global network. The networks that processes 6,800 peak transactions per second with a total of 24,960,000 per hour. In the 12 months prior to 6/06, they processed a total of 56.3 billion total transactions with a total volume of $4.5 trillion.

Growing Concerns Over Latency

In a recent Wall Street and Technology magazine webcast, a poll was taken amongst attendees with the question: “What is the greatest limitation or challenge in your current infrastructure and organization around processing and analyzing real time market data?” Of the respondents, 43.1% stated that latency was their biggest concern.

The hurdles to real time (virtually zero latency) data include:

Traditional store and then process systems
Processing a combination of live and historical data in tandem
The inability to accurately predict and rely on bandwidth in the wide area
Managing imperfections within a stream
Load distribution/ load balancing and hardware performance
Decimalization in real time
Non-deterministic networks (such as Ethernet)
Home grown and/or poorly performing infrastructures
From the enterprise to the local area network, the issues above will have different solutions. However, since the most controllable latency is within the local area, we will focus on the LAN and Data Center.

Home Grown and Poorly Performing Infrastructures

There have been many mergers and acquisitions in the financial sector. Not only is compliance a concern, but the health of the inherited network can exacerbate problems. There are many points in the infrastructure that can cause latency. Using the following diagram, we will move through each section.