It’s been almost two years since Interactive Data Corporation acquired 7ticks in a strategic move that allowed the market data providers to move into the ultra-low high frequency trading realm. With the businesses more integrated, MarketsWiki’s Jessica Titlebaum sat down with Emmanuel Doe, president of the Trading Solutions Group at Interactive Data, and Joe Bigane, the managing director of Interactive Data 7ticks, at the Futures Industry Association’s annual Expo, to discuss how their services have evolved with the changing industry, what trends they see from client requests and where efficiency efforts should be focused.

Q: How have changes in the industry impacted the services you provide to your clients?

Emmanuel Doe: The difference and the challenge is that we now live in a global economy and global asset class reverb is something we are very focused on.

It’s not always about cost or performance. It’s about understanding the global landscape and the trading process because today it’s a global process. Commodities are driving equities and commodities are being driven by various interest rates factors so there is a whole change in market dynamics. Everything is correlated with one another. We see silver going down and gold going down and equities going down and we think there should be an inverse correlation with each other.

The paradigm of the performance of our customer base is changing very rapidly because of the concept of electronic trading. It’s no longer about distributing one piece of information around the world. Latency matters, trading matters and our ability to get those bits of information in the most cost effective manner is that much more important. Our customers are trading on a global basis and they need solid partners to help them access foreign market. They are looking for providers that can help them get out there and those they can trust and that can provide them with good data in a transparent form.

Q: What are some of the things your clients are asking for? Are you seeing any trends in the industry?

ED: A lot of clients are asking about pre-trade risk management and post-trade from an execution slippage perspective. We provide tick database capabilities to find out what our customers can improve from an execution standpoint. A lot of clients are asking us provide them with analytics that are very custom depending on their trading strategy, the markets they are accessing and other factors. We provide the guts and plumbing of the data so that all of this analysis can happen with the appropriate content. They want an accurate representation of what happened in the market to compare against a certain trade.

Joe Bigane: Focusing in on the regulatory reform, the retail population is gaining visibility and further understanding and more buy side firms are starting to get measured on their transaction costs. Market participants are using the data and infrastructure services we provide to turn around valuable analytics and transparency.

ED: The interesting thing is the turns people are taking in the market right now. Everyone is looking at ways to eke out another 50 to 100 basis points by optimizing trade cost analysis and execution analysis. It’s not just the hedge funds doing it but I see long funds doing it and long short equity funds doing it. The funds that were once focused on pure returns before – how do I capture alpha – are now looking at execution as a way to leak out another 50 to 100 basis points a year.

JB: We have seen growth within buy side firms who are not involved in high frequency trading because they can leverage co-location and proximity locations for better executions and faster market data. Co-location and proximity services are readily available and most would consider them cost effective. Because a firm does not sit in the HFT category does not mean they wouldn’t benefit.

Q: What do you think about the race to zero and will latency eventually become a level playing field?

ED: Firms are constantly focused on the milliseconds or microseconds it will take to get their data from X to Y but you know what – if you think about the application stack executing the trades – that application stack has latency built into the application a few 300 -400 milliseconds. When you are trying to hardwire the delivery time of market data, for example 50 milliseconds, but your trade decision process takes like 300 or 400 milliseconds to process accurately, that adds up. The applications, decision time frames, complicated events – take a long time so it’s not just about market data getting there faster because if you can’t do anything with the market data getting there faster -what’s the point? You need to be able to do something with that intelligence so there is so much more latency involved with the trading application stack as opposed to just the market data stack. There is a whole other paradigm that some firms are focused on but other firms are like, it is what it is.

Everyone is focused on microseconds and milliseconds but there are some traders still using Excel as a trading tool. Look at the exchanges in the BRIC countries where latency is measured in seconds or minutes, which is a whole other paradigm. The Tokyo Stock Exchange for example, when they send out time stamps on their data it just went from minutes to seconds in the past few years where the US exchanges have been in milliseconds so it doesn’t matter if you can get down to the millisecond because some systems can’t process it anyway.

Q. Where can we expect advancements?

JB: What Emmanuel is describing is the decision making process. There are a wide range of considerations that factor into the trading process. There are workstations to consider, software, the network, the human process. When you think about it from analysis, to decision making to execution – a large part of the market is not even close to “full automation.” In the future, we believe you will see efficiencies happening around the decision making process.

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