Opening Cross: The Cost of a Ride on the Wall Street Rollercoaster

If you’re considering a trip to an amusement park like Coney Island or Six Flags this weekend, think again: The biggest rollercoaster is on Wall Street. As of last Thursday, Aug. 11, the Dow Jones Industrial Average had changed direction each of the past seven trading days and posted a net change of at least 400 points for four consecutive days for the first time ever. The seesawing markets may have analysts baffled, and investors worried about their savings and retirement funds, but the volatility is creating some opportunities for risk-takers—tempered by some major challenges.

On the opportunity side, there are reports of increased insider dealing—company executives using the downward days to snap up their own stock at bargain prices, which, if anything, signals some confidence among business leaders that growth will return. But the volumes of data generated over the past week are creating capacity issues that can impact trading, despite affordable bandwidth, high-performance processors and data compression technologies.

According to marketdatapeaks.com, US data rates hit 5.25 million messages per second on Aug. 4 and 4.9 million mps twice on Aug. 10, edging dangerously close to the capacity of 5.257 million mps recommended by the Options Price Reporting Authority (though this is only for options data, while marketdatapeaks’ figures include equities markets).

“Last Friday [Aug. 5], we processed 12.6 billion options messages,” says one data vendor (Opra’s bandwidth recommendations for July support 17.3 billion messages per day). “For exchanges to tell us to add more servers and capacity may have been fine 15 years ago, but Opra needs to do something to filter the amount of data. There are so many changes outside the money that nobody cares about and never result in a trade.”

Data vendors seem to have handled the volumes, but exchanges did not escape unscathed. Nasdaq had to reset the Securities Information Processor for Channel six of its UTP Quotation Data Feed—which carries data on securities starting with the letters S through Z, and includes symbols that experienced heavy trading activity—after maxing out the amount of sequence numbers it could support in one day (100 million), which could have resulted in some stale data or errors for firms requesting retransmission of certain data messages.

NYSE Euronext also experienced problems, but dismissed any outages as a result of changes to its IT architecture. “More messages are now arriving on our systems than before, and peripheral elements such as networks or index calculation programs have been slowed down. But share trading, the machine core, has not been disrupted,” a spokesperson says.

However, the volatility and volumes are good news for some—and didn’t just impact the major markets: The Johannesburg Stock Exchange also saw a 12 percent increase in trades to 230,797 trades on Aug. 10, while the global volumes prompted positive statements from trade ideas provider TIM Group (formerly YouDevise)—which reported institutional investors using around twice the amount of trade ideas as in the last week of July—and hardware messaging vendor Solace Systems, which noted that the peaks could drive consumers to adopt robust hardware platforms capable of handling higher volumes.

Andy Nybo, principal and head of derivatives at research firm Tabb Group, says that with the speed and volume of data continuously increasing, firms must balance whether to build more capacity to support peaks that may or may not occur, even if it strains their budgets. “Some firms impacted will re-evaluate their technical infrastructures that manage their data activities, and will evaluate how much they need to invest and re-invest,” Nybo says, adding that whatever the short-term cost, not being able to handle peak volumes could prove even more costly in the long run.