Bringing it all together

BT Low Latency Management for Financial MarketsIncreased reliance on electronic and algorithmic trading, combined with regulatory and structural changes, has accelerated the pace of overall trade messaging rates in 2007 and 2008. Computerised trading goes by many names, including programmatic, automated, algorithmic, black-box and model-driven trading. The computer software chooses what to trade and how to trade, while the human will set and modify the parameters and behaviour of the application. More than 50% of business on the New York Stock Exchange (NYSE) in 2007 was generated by computers.

The result for Financial Markets companies is the need to receive this increasing volume of data over the lowest latency infrastructure possible. This has led to the push for lower latency of Market Data and Trade Execution coupled with state of the art monitoring and optimisation solutions to provide a line of sight and superior intelligence across critical infrastructure.

BT’s Low Latency Management Professional Services Package responds directly to the key challenges faced by our Financial Markets customers by providing a dedicated team of experts to measure, analyse and optimise an organisations network infrastructure for high frequency trading to manage low and deterministic latency

BT Low Latency Management for Financial Markets

What are the challenges?Maintaining competitive position in a difficult global climateVolatile market conditions and concerns about the global economic slowdown, with sharp falls in Financial Markets share prices, have created uncertainty. Along with these conditions, speed of execution is the cornerstone of the financial markets with the difference between success and failure of a latency sensitive trading strategy being a matter of microseconds.

As a result, the ability to rapidly process, analyse and react to the volumes of data is a critical component of an organisations competitive advantage.1

Growth in the adoption of electronic and algorithmic trading With the advances in moving trades from high touch to low touch and now to fully automated, coupled with high frequency direct market access, increased hedge fund and derivative trading, the drive towards exceptional volumes of electronic trading remains unstoppable. Additionally, the complexity and improvement of trading algorithms is driving significant investment in technology. Whilst it is estimated that the spend on market data infrastructure will remain flat, there is specific focus on making informed investment choices to drive business improvement in high frequency trading groups. To do this, companies need to understand where

1. TABB Report – The Value of a Millisecond: Finding the Optimal Speed of a Trading Infrastructure, April 2008

data acceleration technologies, such as direct market data feeds, event stream processors and low latency messaging, fits into their infrastructure to maximise their investment

Deterministic LatencyOrganisations must balance where and how they invest in their high-speed, low latency infrastructures as they have to be certain that the data they transmit will reach its destination, as quickly and as consistently as possible.

In addition, more and more customers are expecting consistent delivery and execution of their trades.2

The Solution

Financial Markets companies need a real-time latency monitoring and optimisation solution so they can draw benefit from having insight of critical trading environments.

How can BT help?BT’s Low Latency Management Package clearly explains the benefits of particular technologies and approaches, leveraging the existing BT Radianz portfolio, brand and experience aligned with BT Professional Services. The engagement will enable Financial Markets organisations to understand their network to microsecond granularity and ensure it is optimised for low and predictable latency.

2. TABB Report – Trading at Light Speed: Analysing Low Latency Market Data Infrastructure, March 2007

BT and the financial services industryBT is one of the world’s leading providers of networked IT services to the global financial community. Addressing the unique requirements of this sector, BT has more than 25 years of experience providing specially developed products and services for the financial industry. Following the acquisition of Radianz in 2005, BT has further developed a reputation for creating solutions that help Financial Services organisations increase revenues, reduce costs and improve service to their customers

In terms of capability in the FS Sector, BT has the following capabilities:

• More than 2000 financial services industry experts.

• Currently, over 1,000 BT Professional Services consultants are working with major financial services around the globe.

• Operates the Radianz Shared Market Infrastructure supporting over 10,400 financial sites around the world including access to 550 trading applications from 256 of world’s leading content providers.

• Operates “The Agile Bank” a state of the art facility where retail banks can experience the latest customer service interactions. It links the home with the branch and the enterprise.

• Leaders in converged trading platforms, used by more than 60,000 traders in over 800 trading firms across 51 countries – 1 in 3 traders worldwide use a BT trading system turret.

• The world’s top 10 global stock exchanges depend on BT infrastructure.

• The world’s top 50 global broker-dealers depend on BT infrastructure.

• 48 of the world’s top 50 asset managers depend on BT infrastructure.

• 44 of the world’s top 50 global hedge funds depend on BT infrastructure.

• The world’s top 10 global fixed income securities firms use BT infrastructure.

Latency refers to the amount of time it takes for a packet of data to get from one designated point to another. Latency affects the distribution of market data, processing financial messages, making trading decisions and communicating with an exchange.

In 2008, 16% of all institutional equity commissions are exposed to latency risk, totalling $2 billion in revenue. TABB Group estimates that if a broker’s electronic trading platform is 5 milliseconds behind the competition, it could lose at least 1% of its flow; that’s $4million in revenues per millisecond. Up to 10 milliseconds of latency could result in at least a 10% drop in revenues.

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If a system runs with only 9 milliseconds of latency 98% of the time but if during the remaining 2% of the time it is running seconds instead of milliseconds behind the market, all the profits that were otherwise generated may be lost.

The BT Low Latency Management Professional Services PackageSpeed is the cornerstone of the financial markets with regards to the execution of trades and BT understands that the difference between the success and failure of a latency sensitive trading strategy can be a matter of milliseconds or microseconds.

BT leverages Corvil, a leading, global capital markets latency management innovator to deliver microsecond granularity network latency monitoring and base-lining. BT Professional Services will perform detailed analysis and make recommendations for optimising an organisations trading infrastructure in support of the growing trend towards low latency and electronic trading.

Combining high-performance connectivity of the leading financial services market with BT expertise provides you with a fully managed, continuous improvement programme to ensure you stay ahead in the latency arms race.

We deliver a best in class service to ensure your network is optimal to support high frequency trading; we rapidly troubleshoot, offer fixes and optimise which delivers maximum business benefit to you.

The Benefits of BT Low Latency ManagementBy leveraging BT’s Low Latency Professional Services Package, an organisation can expect the following benefits:

• Reduced & predictable latency A reduction in the number of milliseconds in your trade cycle to gain advantage over competitors. This will help you become a dominant player in the Financial Markets

• Visualisation of your network BT provide global network visibility for critical trading environments and provide organisations with visibility of where companies need to focus their reduced IT expenditure in order to achieve trading targets and reduce latency

• A dedicated team of expert analysts monitoring microsecond granularity and latency in near-real time to ensure your network is optimised for electronic trading

• Improved fill to cancel ratios and assistance in generating more revenue from trades by ensuring you remain at front-of-queue when executing trades

• Provides organisations with a latency baseline With the ability to report on the performance of the Market data and transactional order flow, this enables BT (leveraging Corvil technology) to optimise infrastructure within your environment to allow faster data flow and reduced latency

• Provides pro-active problem identification and resolution and allows organisations to access best of breed and new technology faster.

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The Low Latency Management ProcessThis engagement leverages CorvilNet, the latency management system from Corvil and is based on the ITIL best practice Continual Service Improvement approach. This provides a framework to collect meaningful data, analyse this data to identify trends and issues, present the information for prioritisation and agreement and implement the recommended improvements.

Begin your Professional Services Package by completing a checklist on your current latency performance to identify the most appropriate starting point for the remainder of the engagement.

The checklist does not require technical input and should be completed by the CXO or business sponsor who is aware of the current latency performance and issues.

There are two levels of the engagement and your BT Account Manager will recommend the most suitable after an analysis of your requirements. These levels address the key challenges faced by organisations reliant on electronic and algorithmic trading. Each level draws on BT’s wider business consultancy approach and provides support to your organisation throughout the full project lifecycle.

Inputs Activities Typical OutputsAgreement of scope and objectives with customer CXO or equivalent business sponsor / lead

Data gathering and scoping with operational heads and functional managers

Information gathered for workshop

Information from data gathering

Initial checklist completed

Workshop with operational heads and functional managers

Analysis of key information:

• Issue analysis

• Requirements capture

• Definition of the statement of work

• Success criteria discussion

Understanding the network topology to identify where to install the CorvilNet devices

Presentation of high level recommendations to key stakeholders

Common understanding of organisations strategic approach to Low Latency trading, benefits of action and of strategic objectives

Identification of low latency trading priorities and production of vision roadmap

Client proposal / statement of work developed for next options

Agree the next steps i.e. arrange the next level analysis phase and set up future meetings with key stakeholders

Level One: Low Latency Requirements Workshop (1 - 2 days)

A high level engagement culminating in a one-day workshop between key stakeholders and experienced Corvil and BT consultants will help you understand how to improve latency in your organisation.

The workshop aims to expand or validate your current understanding of the benefits of the Low Latency Management proposition as well as document your business requirements and network issues you wish to measure and analyse from a latency perspective.

The outcomeStatement of work which includes:

• Assessment of your requirements and strategic objectives

• Identification of Low Latency trading priority areas

• Recommendations to key stakeholders.

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Level Two: Low Latency Measurement, Analysis and Optimisation (Approximately 4 weeks)

When considering how to reduce latency, the first step is to measure it.

BT will provide a critical line of sight through CorvilNet. We will audit, measure and baseline the real time latency of your end-to-end trade cycle. This may be for your highest volume exchanges, your proprietary trading desks or your most critical Direct Market Access (DMA) customers.

BT will work closely with you to leverage the granular measurement output. With the ability to identify latency in the trade cycle and act upon it; proactively diagnose potential capacity challenges, instantly see if a component fails or is affecting trade cycle performance, this level of engagement provides a more exhaustive and technical and physical assessment of your organisation’s latency.

BT Professional Services will leverage the results from the measure and analysis phase and report the recommendations in order to optimise the latency.

A full improvement programme will be developed in order to achieve the benefits expected.

This level will leverage state of the art technology and supporting processes and provide recommended improvements to ensure your trading environment is best in class.

N.B. An extended Professional Services engagement may be required to deliver and implement a full business improvement programme post the level two stage of this package.

Inputs Activities Typical OutputsAgreement of scope and objectives with customer CXO or equivalent business sponsor / lead

Client proposal / statement of work signed off by client

CorvilNet will be deployed onto the customer’s network in order to monitor and measure real-time and end to end network latency with microsecond granularity; visualise spikes and potential packet loss; understand latency trends and network / application behaviour under pressure from increasing traffic volumes

Vision roadmap to ensure common understanding of scope, timelines

Initial latency performance metrics captured

Business benefits metrics analysis

Initial latency performance metrics captured

Completed analysis and measurement using CorvilNet

Analysis of the CorvilNet data and results

Discussion with client contacts to discuss initial results

Collation of report showing the results and high level benefits and recommendations

The identification of latency “hotspots” and areas of further improvement for the customer

Analysis report / presentation on the client’s latency outlining high level recommendations

Completion of measurement and analysis

Project planning and scoping of the recommendations into an Implementation Plan

Return on Investment for the business case

Impact analysis i.e. understanding the impacts of any improvements / recommendations on the business

Programme plan for typical deployment created and validated

Benefits management

Statement of work / proposal completed outlining all the recommendations for implementation

Presentation of programme to senior stakeholders

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The OutcomeBT will be able to make targeted recommendations on how you can reduce latency and also how to implement the improvements in order to optimise your network infrastructure for low and consistent latency.

Case study: Large Global Investment BankCorvil teamed with BT to deliver a best-in-class solution for automatic and continuous monitoring, analysing and optimising of a large global Investment Banks network for low-latency.

The global deployment within the investment banks network covers LAN and WAN facilities in three different continents and represents one of the most comprehensive low latency networking projects in the market to date.

In today’s electronic trading environments, a latency reduction measured in microseconds can offer a significant competitive advantage. Traditional network instrumentation, analytics and optimisation technologies are not able to meet the low-latency demands of these environments where every microsecond matters. CorvilNet is specifically designed to monitor, analyse and optimise the network against ultra low (microsecond) latency objectives, including those on market information feeds.

With the CorvilNet Latency Management System, network administrators can proactively specify the latency objectives of the network in terms of meaningful objectives and automatically and continuously monitor the network for compliance against those baselines. If latency violations occur, CorvilNet immediately alarms, performs a “smart” packet capture for deep forensics and provides recommendations for network optimisations to re-establish performance in line with expectations. Additionally, with CorvilNet, a network administrator can easily measure the headroom available for market surges, traffic growth, or the impact of new applications on the network.

“We are pleased that this client has selected Corvil for latency management and optimization of their network infrastructure”, said Donal Byrne, CEO of Corvil. “We look forward to working with this global investment bank and BT GFS teams to maximally exploit the benefits of having superior latency information and performance to achieve trading advantage.”

The key deliverables of the Low Latency Management Professional Service Package typically include:

• Statement of work outlining the measurement and analysis of the client’s latency with clear success criteria

• Latency analysis report highlighting the “hotspots” and recommendations to optimise the latency

• Development of high level business case to senior stakeholders

• Initiation of a full Implementation programme of recommendations aligned with benefits realisation and reassessment of the latency.

There are specific tools and solutions that can be chosen to best meet your organisation’s requirements, depending on your situation and the work done during the Professional Services Package process.

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Status Checklist

1. Customer Fit & ProfileWhat sort of Financial Markets organisation are you?

Execution Venue

Broker Dealer

Hedge Fund

Market Data Provider

Service Provider

Investment Bank

Other

Do you believe that lowering the latency within your algorithmic trading would increase your revenue generating capability?

Yes Partially No

Are you able to directly correlate latency improvement against your key business metrics?

Yes Partially No

2. Latency Challengesa) Measurement

Do you believe there is room for improvement in how you monitor your latency sensitive trading environments?

Yes Partially No

Are you aware of the difference that a latency improvement could make to your business?

Yes Partially No

Have you experienced challenges in measuring your network latency?

Yes Partially No

Is latency optimisation a key consideration for your organisation?

Yes Partially No

Are you aware of known / perceived performance issues relating to your network latency?

Yes Partially No

b) Monitoring & Optimisation

Are you aware of Latency measurement and analysis tools and vendors in the market?

Yes Partially No

Have you heard of Corvil’s capabilities with latency monitoring and optimisation with its CorvilNet solution?

Yes Partially No

Are you interested in the development and implementation of business improvements and recommendations in order to optimise your network latency?

Yes Partially No

Have you considered deploying analytical probes on your network?

Yes Partially No

In what environments are you considering latency monitoring and measurement?

Low Latency datacentre

Ethernet

WAN

Other technologies i.e. VoIP, Telepresence

c) Commercial

Are you interested in hearing more about BT’s Low Latency Management Professional Services Package?

Yes Partially No

The following questions will help determine the most effective starting point for a BT Low Latency Management engagement with your organisation.

Please answer ‘Yes’, ‘No’, or ‘Partially’ by checking the appropriate box. You can then total your answers in the summary section, which will give you an indication of your current status.

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• BT has been providing networked and IT services to the financial services industry for over 25 years

• BT Global reach: MPLS can now be reached from 168 countries, 116 of them with Native IP from over 1,250 PoPs

• BT runs Europe’s largest communications research facility, The Agile Bank, at Adastral Park, a state-of-the-art facility where retail banks can experience the latest customer service applications

• BT has a global Professional Services practice with over 10,000 full-time, qualified IT practitioners and consultants

• BT Global Services is a market leader in providing Secure Networking consultancy and solutions, with a security practice with over 1,400 full-time, qualified IT practitioners and consultants.

• BT has been identified by Gartner as a ‘full service provider’ of Business Continuity solution capabilities

• BT manages operational risk for a global networked IT infrastructure. Our major strengths are in risk assessment, control and risk treatments in the ICT arena

• BT is trusted to run mission critical networks for high security organisations such as the Ministry of Defence

• BT runs Visa’s CEMEA transaction network which processes 100 million transactions every day

• BT has over 20million retail customers and therefore significant experience and expertise in delivering solutions and support SME customers.

Further ConsiderationsBT offers Professional Services engagements in Rapid Site Provision and Multi-channel Optimisation, Security, Unified Communications and Collaboration and Work Anywhere.

Some examples of other services we offer:

• Data centre virtualisation and consolidation reduces capital costs by removing unneeded equipment. Running costs of the reduced estate, such as power supply and air conditioning, can be lowered and existing equipment runs more efficiently

• BT’s Sustainability Practice has developed the Carbon Impact Assessment to systematically analyse the carbon footprint of a company. The Assessment provides a clear view of organisations’ biggest challenges in reducing energy consumption and how IT can be used to address them

• Collaborative working tools can contribute to the success of your business by improving team efficiency and productivity, and lowering infrastructure costs in terms of buildings and rooms as employees can communicate more effectively and efficiently without the need for face to face interaction

• When thinking about payments and transactions solutions it may also be a time to consider critical operational risk such as security of networks and identity management maturity. Business continuity practices are also vital to protect brand image and reputation

What next?We can take you through the benefits and implications that would directly affect your organisation. In addition, we can help to build tangible examples that are more valuable to your business stakeholders. Contact your BT Account Manager to arrange a meeting and discuss collaborative working in more detail.

Other BT Contacts include:Joanne Kinsella – Head of Market Infrastructure (joanne.kinsella@bt.com )

About Corvil

Corvil, leader in electronic trading and market data latency management, was founded in 2000 and operates from New York, London and Dublin. The company’s global client base encompasses electronic traders, major market centres, alternative liquidity destinations and service providers including market data, network/hosting and platforms. Recognised as a technology innovator in latency management, Corvil’s products offer a complete solution for enhancing electronic trading, execution and market data including SLA (service level agreement) compliance, performance monitoring, event troubleshooting and infrastructure optimization. For more information on Corvil, please visit www.corvil.com.

Why BT?

Offices worldwideThe telecommunications services described in this publication are subject to availability and may be modified from time to time. Services and equipment are provided subject to British Telecommunications plc’s respective standard conditions of contract. Nothing in this publication forms any part of any contract.

© British Telecommunications plc 2008 Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England No. 1800000

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