The need for speed in the derivatives markets grows stronger every day for CME Group customers. Upgrades on the CME Globex platform that are trimming execution times 50 to 75 percent are designed to meet those demands.
There is no doubt one of the keys to any exchange's success today is the ability to execute trades in milliseconds. Traders demand it and exchanges such as CME Group are pushing to bring world-class speed to them.
So it is no surprise that CME Group's metals and energies contracts received a boost in December 2010 and January 2011, respectively, on CME Globex, the ubiquitous electronic trading platform. Trades in those contracts now occur, on average, in a range of 10 milliseconds to sub-3 milliseconds depending on volatility or trading matching dynamics. And just how fast is a millisecond? Well, a blink of an eye takes about 300 to 400 milliseconds.
Such is the pace of change in today's global financial marketplace. It would be fair to say the Globex platform has undergone a major transformation since it was first launched by CME on June 25, 1992. On day one, the electronic platform handled 1,893 Deutsche mark and Japanese yen futures. By 2004, the platform hit the one-billion contract milestone.
The first version of Globex was based on a partnership with Reuters. By 1998, the next generation of technology used the Paris Bourse's NSC system. That system served the exchange well and was eventually transitioned into an updated technology platform. That upgrade brought more flexibility and complex order functionality to Globex and is credited for expanding CME Group's stature as a premier electronic trading venue. Most recently, over the past 18 months, that technology has given way to another technology system from CME Group, which was designed in large part to handle CME Group's options trading.
The migration of contracts to the faster technology began with foreign exchange, equity index, agriculture and alternative products and, most recently, metals and energies. Next up will be CME Group's interest rate complex, with its Eurodollar and interest rate futures in the second half of 2011.
CME Globex not only serves as the key platform for CME Group products, but it also is the matching engine for other markets around the world, from the Kansas City Board of Trade and Minneapolis Grain Exchange to international markets such as Bursa Malaysia Derivatives Berhad and the Korea Exchange, trading the Kospi 200 futures contract outside Korea's hours, among others.
Contracts now being transacted on the new technology are seeing a sizeable boost in execution speed. Customers are seeing a 50-percent to 75-percent reduction in response times.
Crank It Up
Today's markets are heavily populated by electronic trading systems. High-frequency traders depend on exchanges and their own cutting-edge technology to execute thousands of trades in a matter of seconds. When CME Group steps up the speed of its trading engine, greater volumes tend to follow.
Analysis of the system shows some interesting results after product groups are migrated onto the faster upgraded technology. For example, Globex has seen up to 40-percent higher peak volumes in terms of order flow in certain contracts, particularly in energy markets.
The system is about more than just speed, however. CME Group is also expanding the robustness of its platforms to handle those peak periods when orders come flooding in. CME Globex now is handling peaks in excess of 30,000 orders per second.
"It's clear CME Group's enhancements to Globex have created a more robust system for their customers and members," says Chris Hehmeyer, CEO of HTG Capital Partners. "We've noticed better fills, especially during the peak volume periods, and we've had an easier time executing the complex multi-leg spreads that some traders used to shy away from."
The system upgrades are welcomed by various types of trading firms, not just the high-frequency trading groups. For firms such as Global Advisors, an island of Jersey-based CTA which trades a variety of commodity markets in a medium-term time frame, holding positions for two to three months, the enhancements to Globex still provide benefits.
"I do think that firms our size benefit indirectly from the speed enhancements anyways," says Dwayne Drexler, director at Global Advisors, which trades about 35 different commodity markets. "Our orders get the advantage of faster execution flow for the counterparties of our trades - and to the extent that their orders are shown more quickly to the market, that means our trades are able to find the other side in a more efficient fashion."