CME Group's senior managing director and chief information officer discusses the need for around the clock coverage and the technology that has allowed the company to provide this across asset classes and with microsecond-level performance.

The inexorable rise of electronic trading has left no facet of the capital markets untouched. And while the lightning-fast world of equities trading has led the way, other asset classes have followed, not least exchange-traded derivatives.

For CME Group, the journey towards electronification started in the late 1980s. The group had extended floor trading hours to meet demand for treasury futures from investors in different time zones, but the night shift was not one relished by traders. In response, the group’s Globex electronic trading platform was dreamed up in 1987 to meet the need for after hours coverage, and increase order flows from hub markets such as London.

It was not for another five years, however, that this concept was followed through to execution and became operational in currency products. From here, the system began to expand into the now formidable proposition it is today.

It is a journey that Kevin Kometer, now senior managing director and chief information officer of CME Group, has observed much of first hand. Joining the group as a lead programmer analyst in 1994, just two years after Globex’s launch, his career has overlapped in many respects with the trading platform’s 20 years of operations.

Tech transformation

The platform has been transformed from its roots on a single Tandem Computers (now a division of Hewlett-Packard) NonStop machine, to a comprehensive system based on numerous pieces of cutting-edge hardware running a variety of asset classes in a brand new data centre. At the same time, performance has gone from two seconds or more to a handful of milliseconds, and will soon be slashed to microsecond levels.

“The technology itself has been a tremendous story from where it first started on what we now call our legacy platform,” says Mr Kometer. “Globex is not just a matching engine now, it is massive network distribution, a world class datacentre, order entry and market data.”

This development has been vital, he adds. After all, more than 85% of CME Group’s business is now electronic, and that figure is only likely to rise. “It [electronic trading] is very important to the industry and it is going to continue to grow globally. There is still room for it to do so.”

The “world-class datacentre” in question is a brand new site in the suburbs of Chicago, US, owned and operated by CME Group. Unsurprisingly, its construction was no small undertaking, says Mr Kometer, and from basic buildout to technology installation and subsequent migration, the process took place over a number of years. “It was not a trivial task – it took an awful lot of work from a variety of groups, from the people who actually put the machines in to development and testing.”

The migration itself was done in stages, with the legacy and new systems run in parallel for some time during testing and transfer. “We are always concerned about the risk of moving to a new environment like that, so we do products in parallel and try as much as possible to phase the implementation, so that if something does go wrong, we can back it out and only affect a subset of the markets we run.”

Continued evolution

A similar process will be employed in the next stage of Globex’s evolution, in which a major release is set to be rolled out in September or October 2012, onto a new environment and hardware. New developments will include extensive changes to the matching engine, rewritten order entry and market data gateways and improved network topology, says Mr Kometer. This will result in a performance time of roughly 500 microseconds, and perhaps more importantly, more throughput, capacity and performance consistency.

“We are consistently looking at improving technology… and are always focused on using the latest and greatest technology and innovations out there,” says Mr Kometer. “What we continue to hear from our customers, however, is that consistent performance is key, even during peak market volume times, so one of our goals is focused on making sure customers have consistent and predictable performance at whatever level of speed they are looking for.”

Mr Kometer has more to keep him busy than Globex, not least CME Group’s growing list of partnerships with other bourses across the globe. These typically start with a commercial agreement for services such as hosting – whereby CME Group’s technology and data centre muscle is used to run a market from Chicago for an exchange such as Bursa Malaysia or Dubai Mercantile Exchange – and extend to order routing agreements where markets are made mutually available to traders on different exchanges. For example, Mexico's derivatives exchange, Mercado Mexicano de Derivados, makes it products available to CME’s customers through Globex.

Most striking, however, is the partnership with Brazilian stock exchange BM&FBovespa, which started off as an order routing agreement and now sees Mr Kometer and his team working with their Brazilian counterparts to replace the latter’s derivative platforms as well as develop new equity and fixed-income market systems – new ground for CME Group, as the company does not run such markets domestically. Such partnerships are not just technology plays for the group, says Mr Kometer, “they also work on distribution, product development and things of that nature. We provide a lot of benefit to our partners, and as CME Group looks to expand globally we will be looking at these types of partnerships to help us out.”

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