Options Processing

Options and its representative markets are one of the fastest-growing segments in the financial services industry. A derivative of the cash-equity market, the options market consists of six exchanges—the American Stock Exchange (AMEX), the Boston Stock Exchange (BSE), the Chicago Board Options Exchange (CBOE), the Philadelphia Stock Exchange (PHLX), the International Securities Exchange (ISE), NASDAQ and NYSE Arca— and a centralized clearinghouse, the Options Clearing Corporation (OCC). The Options Price Reporting Authority (OPRA) delivers consolidated market data from the current participant exchanges itemized above.

With restrictions on options trading being universally lifted and more firms participating, the TABB Group and the World Federation of Exchanges predict record volumes on global listed options contracts to grow from 8.3 billion in 2007 to 13.5 billion in 2010. Algorithmic trading strategies not only drive increasing data volumes, but also the demand for low latency and faster execution.

The use of direct market data feeds for options information is growing across all players: sell-side, hedge fund, traditional asset management, exchanges and depositories. Many of these financial firms are pursuing cross-asset strategies and adding options processing to their trading environments. The messaging loads that result necessitate recurring height adjustments to the performance ceiling, thereby impacting networks, applications and message-oriented middleware systems. The Financial Information Forum (FIF) and the Securities Industry Automation Corporation (SIAC) estimate the required ceiling for OPRA to be 1.5 million messages-per-second by mid 2009. For options market makers who integrate direct exchange feeds, the requirements are even higher. The addition of book services, either last known value or full depth-of-book, further escalate message requirements.

Massive volumes of information, along with extreme (and predictably consistent) low-latency requirements, are a recipe for messaging meltdown—a dangerous and increasingly frequent occurrence in our financial markets. Traditional messaging systems just aren’t sufficient to deal with today's world of options.

The Tervela Advantage

The exponential rise in options data volumes coupled with volatile market conditions have impacted how technology gets leveraged to maintain a competitive advantage. While the options game is heavily tied to technology, its demands differ from traditional asset classes and require a reasoned and disciplined approach to financial services architecture and implementation to ensure success.

The Tervela Message Network™—based on the Tervela TMX Message Switch™—was designed to exceed the unique and challenging demands of the options industry. By delivering predictable low latency, ultra-high message throughput, resiliency and scale, the message network delivers critical messaging performance to ensure options trades are reliably processed. Overall benefits include:

Guaranteed Delivery—ensures that messages get delivered to their destination, even if the underlying infrastructure experiences volatility.
Messaging Performance—provides higher-performance messaging than peer-to-peer architectures while delivering scaling capabilities far beyond those available with solutions based on hub-and-spoke infrastructures. Hardware-based message processing and forwarding ensures consistent high performance, regardless of conditions.
Low Latency—ensures deterministic messaging performance—measured in microseconds—even during the most volatile market conditions. Equally important are the consistency and predictability of latency, along with the elimination of risk-generating outliers.
High Availability—ensures that components such as TMX switches failover swiftly and seamlessly, eliminating any single point of redundancy.

For more information, check out our case studies to discover why one of the world's leading financial firms in the options market making business relies on Tervela for options processing. You may also call us at +1 646.586.4200, visit our contact us page or send an email to info@tervela.com.