Banks and Outsourcing: Just Say ‘Latency’

By Derrick Harris

September 24, 2008

A common critique of external cloud computing services is that big-time IT users, like major corporations and financial institutions, are nowhere near getting on board. That might be true for the new breed of “cloud” services, but for the financial services sector, at least, outsourcing is far from a dirty word.

Especially in the world of electronic or algorithmic trading, latency becomes a huge issue that, for some firms, can only be solved by hosting trading platforms in the same datacenters as major exchanges. For those with less-constant, less real-time demands, renting cycles on a global grid architecture, or even renting your own dedicated grid, can guarantee CPUs whenever and wherever they are needed. However they choose to do it — and even if they opt otherwise — the financial world understands the benefits, pitfalls and nuances of outsourced IT.

Ted Chamberlain, research director in the Networking & Communications Services practice at Gartner, believes we’re actually experiencing a bit of an outsourcing renaissance. Traditionally, the financial sector does not like to let technology out of its grip because they view it as such a differentiator, but “I think we’re at the point now where so many of these financial houses either are running out of space or aren’t in the locations they want to be,” says Chamberlain. “Conversely, people like BT Radianz and Savvis actually have started to, I think, build their portfolios to lure [financial institutions] away from their own datacenters.” Especially in the past 12 months, he adds, the proliferation of exchanges going online has drawn a wide range of financial institutions — from investment banks to brokerage houses — to look into hosted datacenters for the sake of interconnecting with the various sources of market data. (Customers with space in one of Savvis’ 29 international datacenters, for example, can cross-connect with anyone in any of the provider’s other locations.)

“It’s definitely becoming a larger trend,” Chamberlain forecasts. “I don’t think we’re going to see a complete flip of all these financial service companies outsourcing to these exchanges in a cloud computing model, but we do see them diversifying and putting some level of their infrastructure in certain providers.”

Although Gartner does not forecast this market, Chamberlain says his gut feeling is that these services will grow somewhere between 30-35 percent year over year, with the EMEA and APAC markets experiencing a doubling in size.

Alex Tabb, a partner in the Crisis & Continuity Services division of the Tabb Group, also sees an increase in outsourcing interest, although not across the board. The big sell-side investment banks experimented with outsourcing several years ago but many have since shied away from the practice, he says. The reason is that potential cost savings were not worth the sacrifices they had to make in terms of control, management and integration. And with such large operations, outsourcing just became too much to handle. For medium-sized banks and smaller buy-side firms, though, Tabb says hosted solutions make a lot of sense because it is easier to pay someone with that expertise than to staff an entire IT department.

Latency: Public Enemy No. 1

One area where there is no contention is the importance of low latency: It is the No. 1 reason financial firms are moving to hosted solutions. Chamberlain calls latency the primary motivator for making the move, particularly when it can be provided without “gargantuantly scaled costs.” Granted, he notes, managed services often bear a premium over simply buying a point-to-point connection or buying traditional content delivery services, but the presence of guaranteed SLAs along with the low latency make it a premium with which they can live.

Tabb says latency is at its most critical in electronic trading scenarios, when trading applications require high-speed access to the exchanges. In particular, he says, “Latency becomes a killer if you’re running VLDBs (very large databases).” An example would be a firm like Bank of New York trading billions of dollars in bonds — for such an operation, Tabb stated, latency will bring down the system. Smaller houses doing algorithmic trading don’t have quite the latency demands as their bigger counterparts because the requirements probably are not as high with 50 people accessing the trading application versus thousands, he added.

“If you’re going to outsource it, it needs to be close — physically, the proximity needs to be close. Because latency, often times, has to do with location,” says Tabb. “If you’re talking about time-sensitive applications, that becomes a deal-breaker.”

Savvis, one of the service providers Chamberlain cites as an industry leader (along with BT Radianz), sees the need for low latency driving customer demand. According to Roji Oommen, director of business development for the financial services vertical at Savvis, latency is a big deal whether firms are doing arbitrage or trying to trying to hide basket trades via division multiplexing and long trade streams. “What they found is it’s a lot cheaper to move your infrastructure inside a datacenter rather than trying to figure out how to optimize your application or get faster hardware and so forth,” he says.

With Savvis’ Proximity Hosting solution (its most popular), which places customers’ trading engines alongside the exchanges’ platforms inside Savvis’ strategically located datacenters, the latency difference compared to in-house solutions is huge, says Oommen. For example, he explains, 80 percent of the New York Stock Exchange’s equities volume occurs over BATS and Archipelago, both of which house their matching engines with Savvis. With Proximity Hosting, he says, latency goes from milliseconds to fractional microseconds. “It would be safe to say,” Oommen adds, “that more and more banks are looking at outsourced datacenter hosting, especially as they participate in markets all over the world, rather than building it in-house — particularly for automated trading.”

In Savvis’ Weehawken, N.J., datacenter, for example, customers share space with the American Stock Exchange, Philadelphia Stock Exchange, BATS Trading, FxAll/Accelor and the New York Stock Exchange.

Xasax, a Naples, Fla.-based company with space at key datacenters across the country (including Savvis Weehawken, Equinix Secaucus, Equinix Cernak and NYSE Metrotech, among others), has created an environment and solution set optimized for hosting financial software that requires access to real-time market data. According to Noah Lieske, Xasax CEO, the customers of the company’s xsProximity solution have the option of housing a trading platform 30 microseconds from NASDAQ. If customers opt to collocate in Equinix Secaucus, they are 1 millisecond from NASDAQ. Essentially, he says, Xasax’s customers want to localize trading logic next to the exchanges, and “they couldn’t do it faster because we built it out the fastest possible route — and if there’s a faster way to do it, we’ll do it.”

“For those who truly understand the low-latency game,” he adds, “it doesn’t take much for them to understand the value of putting their machines at the closest proximity to the exchange as possible.”

Other Driving Forces

Latency, cost and ease of management are not alone in driving financial services customers to outsource. Savvis’ Oommen, for example, credits a deluge of market data with bringing customers into Savvis’ fold. He says the output of options traffic in North America, for example, has increased from 20 MBps to 600 MBps. Therefore, an options trading firm could be staring down a 20x increase (from about $5,000 a month to $100,000 a month) just in raw network connectivity to handle this data load.

From Xasax’s point of view, datacenter power and space constraints also play a role in growing the business. While growth in high-frequency trading is exponential, says Lieske, the fields where Xasax’s customers and the financial institutions collocate are pretty much out of power and space. “As fast as these facilities can be built, they’re being filled up,” he says. By having space in these coveted locations, Lieske sees his company as having “a bit of a monopoly.” However, he acknowledges that limited space sometimes requires Xasax to send customers to secondary locations — a problem that is mitigated by physical cross-connects between the various datacenters. Customers can have a secondary location as their hub but still maintain the lowest possible latency between other datacenters.

In terms of cost, Lieske says a comparably equipped in-house infrastructure could cost a couple of hundred thousand dollars per month versus $20,000-$30,000 with Xasax.

For IBM, who claims a large number of financial customers for its Computing on Demand solutions, the real draw is the ability to handle peak loads without overprovisioning hardware. Christina Cunningham, a project executive on the Computing on Demand division, says IBM’s customers tend to have extreme workloads requiring lots of capacity for short periods of time. These types of jobs include risk management calculations and Monte Carlo simulations. “Why purchase something that you need to have … in your datacenter taking up space 24×7 when you might only need that in a cyclical way?” she asks rhetorically. By renting time on IBM’s global grid, customers can get resources on a dedicated, variable or dynamic basis depending on their needs. Cunningham also cites space and power constraints as a driver, noting that IBM helps customers solve these issues by offering grid resources in three strategic, minimal-latency locations: New York, Japan and London.

But Financial Firms Hate Letting Go of Their Stuff …

Stating that “[i]t is not a one-size-fits-all solution,” Tabb Group’s Tabb says there are technical, management and oversight challenges that outsourcing brings into play. Other key concerns include the effect on the bottom line; continuous capabilities — whether service providers can sustain operations in the event of a power failure or weather event; legal implications of doing computing overseas; and how much control firms require over their data. Tabb says buy-side firms often have very complex algorithms, which they hold dear. “They look at that as the mother lode; that is their firm,” he explains. “They don’t want anyone else to see it, much less touch it.” In terms of continuity, the Tabb Group often tells smaller clients that outsourced solutions offer better results than they can achieve in-house.

“It does take a certain amount of learning curve and risk tolerance to be able to take their trading systems out of their control, so to speak, and into a hosted environment,” says Xasax’s Lieske. Customers have to trust their provider is providing a high-quality environment so the customer can focus on their core competencies rather than the nuts and bolts of running a trading system, he adds. Xasax is in a good position to offer 100 percent uptime because it requires its approximately 40 partners to source things four times (it encourages six), a level of redundancy that allows for multiple failures before a customer might experience ill effects.

Oommen says Savvis has been pretty lucky in terms of having to overcome obstacles. For one, he says, the company can site its hosting of the New York Stock Exchange as a security proof point, as well as many other exchanges and every “brand-name” bank and hedge fund. For basic collocation, Oommen says customer concerns usually center around “is it staffed, is it secure [and] is it outside a nuclear blast radius of New York?”

IBM, says Cunningham, tackles security concerns by offering very secure point-to-point connections, with one datacenter featuring 26 incoming carriers for maximum redundancy. Big Blue also offers a diskless model where CPU and performance are carried out on the grid but no data is left there. However, its biggest security claim probably is IBM’s willingness to work with customers. “Most of the companies know who the manufacturers are that are really secure in the standards they want to abide by in the industry, and so we work with those types of providers to make sure we have the equipment,” Cunningham says.

Additionally, IBM has ethically hacked its infrastructure twice in the past three years “to make sure there’s no way anybody can get in”; complies with ITAR (International Traffic in Arms Regulations) for government customers; and offers “top secret and above” clearance, Cunningham says.

Gartner’s Chamberlain doesn’t see too many issues around security due to the heavy investments made by service providers and the tendency for financial firms to “kick the tires” before adopting any new technology. However, he believes too much growth in the hosting market could actually be an issue. “I don’t think we’re going to see too many instances where information was stolen [or] IP networks were sniffed. I think we’re OK there,” Chamberlain says. “I think the only future potential issue is that with the low-latency requirements, you can only do so much until the speed of light trips you up.”

If scaling gets to the point where providers cannot meet ideal latency levels, Chamberlain wouldn’t be surprised to see a customer like the Chicago Mercantile Exchange bring its systems back in-house and build out its own fiber network. However, he acknowledges, there is a lot of untapped network capacity and dark fiber in this country, so it would take a major growth spike to reach that point.

Virtualization is the Future

Nearly everyone interviewed for this story cites virtualization, in one form or another, as being a key to future growth. Oommen says Savvis has seen a big uptake in virtualization, and the company offers customers the option of running applications in a multi-tenant cloud. He cites asset management firms as a big user here, as they have many end-users who want to see their portfolios in real time — a prime job for Web servers running within the cloud. Of course, he says, there are still concerns around both security and performance along this front, and Savvis doesn’t force anyone to run in a shared environment. In terms of performance, though, he says Web services generally run smoothly on virtualized platforms.

Xasax also is growing through automation and virtualization, from storage to provisioning. One use case the company really likes is the ability to sandbox new clientele in evaluation environments, where potential customers can sign up for a VM, bring it into production, and “get the same connectivity as Credit Suisse or Bank of America,” Lieske says. And while high-frequency traders won’t mess around with a virtual OS, Lieske says they seem to have no problems with virtual storage. Virtualization also allows Xasax to offer a variety of other services, he adds, like production-quality execution management systems, FIX (Financial Information eXchange) gateways for brokers, etc. Internally, virtualization has allowed Xasax to grow with less overhead and management than would have been required in a strictly physical environment.

IBM Computing on Demand’s Cunningham says her division also is seeing an interest in virtualization from clients, particularly around virtual desktops. However, she admits, there are some hurdles to be overcome by customers before they are ready to deploy virtual desktops in real-time scenarios. “When they look at cloud, they’re really focused on server capacity that’s taking up their datacenters,” she explains. “They’re a little bit less concerned about the number of servers taking up their Exchange; what they really want is the high-performance computing, and they want to be able to send it out.” While IBM does have a virtual desktop offering for financial services, it is seeing more questions than takers at this point.

Alex Tabb also sees desktop virtualization taking off, especially among smaller firms. Markets are running 24 hours a day, he says, and traders need to access their terminals no matter where they are in the world, from any computer.  “In today’s economic environment, things change on a dime: the world’s coming to an end, and all of a sudden, in 10 minutes, we’re in the big rally,” he quipped. “Having that flexibility is really important.”

Whatever Works Best

Although the credit crisis of last week was not a failure of IT, Tabb says, the turmoil does underscore the importance of finding the right trading solution, be it in-house or outsourced. And with IT spending among financial service organizations in limbo — a 180-degree turn from “definitely on the rise” six months ago — outsourcing could look even more appealing.

“A strong information technology department and strong capabilities with your human resources and your people can make all the difference in the world,” Tabb says. “Having the ability to react quickly to market changes — and here is where latency becomes a huge issue — can have a significant impact on your trades.”

Subscribe to HPCwire's Weekly Update!

Be the most informed person in the room! Stay ahead of the tech trends with industy updates delivered to you every week!

The Case for an Edge-Driven Future for Supercomputing

September 24, 2021

“Exascale only becomes valuable when it’s creating and using data that we care about,” said Pete Beckman, co-director of the Northwestern-Argonne Institute of Science and Engineering (NAISE), at the most recent HPC Read more…

Three Universities Team for NSF-Funded ‘ACES’ Reconfigurable Supercomputer Prototype

September 23, 2021

As Moore’s law slows, HPC developers are increasingly looking for speed gains in specialized code and specialized hardware – but this specialization, in turn, can make testing and deploying code trickier than ever. Now, researchers from Texas A&M University, the University of Illinois at Urbana... Read more…

Qubit Stream: Monte Carlo Advance, Infosys Joins the Fray, D-Wave Meeting Plans, and More

September 23, 2021

It seems the stream of quantum computing reports never ceases. This week – IonQ and Goldman Sachs tackle Monte Carlo on quantum hardware, Cambridge Quantum pushes chemistry calculations forward, D-Wave prepares for its Read more…

Asetek Announces It Is Exiting HPC to Protect Future Profitability

September 22, 2021

Liquid cooling specialist Asetek, well-known in HPC circles for its direct-to-chip cooling technology that is inside some of the fastest supercomputers in the world, announced today that it is exiting the HPC space amid multiple supply chain issues related to the pandemic. Although pandemic supply chain... Read more…

TACC Supercomputer Delves Into Protein Interactions

September 22, 2021

Adenosine triphosphate (ATP) is a compound used to funnel energy from mitochondria to other parts of the cell, enabling energy-driven functions like muscle contractions. For ATP to flow, though, the interaction between the hexokinase-II (HKII) enzyme and the proteins found in a specific channel on the mitochondria’s outer membrane. Now, simulations conducted on supercomputers at the Texas Advanced Computing Center (TACC) have simulated... Read more…

AWS Solution Channel

Introducing AWS ParallelCluster 3

Running HPC workloads, like computational fluid dynamics (CFD), molecular dynamics, or weather forecasting typically involves a lot of moving parts. You need a hundreds or thousands of compute cores, a job scheduler for keeping them fed, a shared file system that’s tuned for throughput or IOPS (or both), loads of libraries, a fast network, and a head node to make sense of all this. Read more…

The Latest MLPerf Inference Results: Nvidia GPUs Hold Sway but Here Come CPUs and Intel

September 22, 2021

The latest round of MLPerf inference benchmark (v 1.1) results was released today and Nvidia again dominated, sweeping the top spots in the closed (apples-to-apples) datacenter and edge categories. Perhaps more interesti Read more…

The Case for an Edge-Driven Future for Supercomputing

September 24, 2021

“Exascale only becomes valuable when it’s creating and using data that we care about,” said Pete Beckman, co-director of the Northwestern-Argonne Institut Read more…

Three Universities Team for NSF-Funded ‘ACES’ Reconfigurable Supercomputer Prototype

September 23, 2021

As Moore’s law slows, HPC developers are increasingly looking for speed gains in specialized code and specialized hardware – but this specialization, in turn, can make testing and deploying code trickier than ever. Now, researchers from Texas A&M University, the University of Illinois at Urbana... Read more…

Qubit Stream: Monte Carlo Advance, Infosys Joins the Fray, D-Wave Meeting Plans, and More

September 23, 2021

It seems the stream of quantum computing reports never ceases. This week – IonQ and Goldman Sachs tackle Monte Carlo on quantum hardware, Cambridge Quantum pu Read more…

Asetek Announces It Is Exiting HPC to Protect Future Profitability

September 22, 2021

Liquid cooling specialist Asetek, well-known in HPC circles for its direct-to-chip cooling technology that is inside some of the fastest supercomputers in the world, announced today that it is exiting the HPC space amid multiple supply chain issues related to the pandemic. Although pandemic supply chain... Read more…

TACC Supercomputer Delves Into Protein Interactions

September 22, 2021

Adenosine triphosphate (ATP) is a compound used to funnel energy from mitochondria to other parts of the cell, enabling energy-driven functions like muscle contractions. For ATP to flow, though, the interaction between the hexokinase-II (HKII) enzyme and the proteins found in a specific channel on the mitochondria’s outer membrane. Now, simulations conducted on supercomputers at the Texas Advanced Computing Center (TACC) have simulated... Read more…

The Latest MLPerf Inference Results: Nvidia GPUs Hold Sway but Here Come CPUs and Intel

September 22, 2021

The latest round of MLPerf inference benchmark (v 1.1) results was released today and Nvidia again dominated, sweeping the top spots in the closed (apples-to-ap Read more…

Why HPC Storage Matters More Now Than Ever: Analyst Q&A

September 17, 2021

With soaring data volumes and insatiable computing driving nearly every facet of economic, social and scientific progress, data storage is seizing the spotlight. Hyperion Research analyst and noted storage expert Mark Nossokoff looks at key storage trends in the context of the evolving HPC (and AI) landscape... Read more…

GigaIO Gets $14.7M in Series B Funding to Expand Its Composable Fabric Technology to Customers

September 16, 2021

Just before the COVID-19 pandemic began in March 2020, GigaIO introduced its Universal Composable Fabric technology, which allows enterprises to bring together Read more…

Ahead of ‘Dojo,’ Tesla Reveals Its Massive Precursor Supercomputer

June 22, 2021

In spring 2019, Tesla made cryptic reference to a project called Dojo, a “super-powerful training computer” for video data processing. Then, in summer 2020, Tesla CEO Elon Musk tweeted: “Tesla is developing a [neural network] training computer called Dojo to process truly vast amounts of video data. It’s a beast! … A truly useful exaflop at de facto FP32.” Read more…

Enter Dojo: Tesla Reveals Design for Modular Supercomputer & D1 Chip

August 20, 2021

Two months ago, Tesla revealed a massive GPU cluster that it said was “roughly the number five supercomputer in the world,” and which was just a precursor to Tesla’s real supercomputing moonshot: the long-rumored, little-detailed Dojo system. “We’ve been scaling our neural network training compute dramatically over the last few years,” said Milan Kovac, Tesla’s director of autopilot engineering. Read more…

Esperanto, Silicon in Hand, Champions the Efficiency of Its 1,092-Core RISC-V Chip

August 27, 2021

Esperanto Technologies made waves last December when it announced ET-SoC-1, a new RISC-V-based chip aimed at machine learning that packed nearly 1,100 cores onto a package small enough to fit six times over on a single PCIe card. Now, Esperanto is back, silicon in-hand and taking aim... Read more…

CentOS Replacement Rocky Linux Is Now in GA and Under Independent Control

June 21, 2021

The Rocky Enterprise Software Foundation (RESF) is announcing the general availability of Rocky Linux, release 8.4, designed as a drop-in replacement for the soon-to-be discontinued CentOS. The GA release is launching six-and-a-half months after Red Hat deprecated its support for the widely popular, free CentOS server operating system. The Rocky Linux development effort... Read more…

Intel Completes LLVM Adoption; Will End Updates to Classic C/C++ Compilers in Future

August 10, 2021

Intel reported in a blog this week that its adoption of the open source LLVM architecture for Intel’s C/C++ compiler is complete. The transition is part of In Read more…

Hot Chips: Here Come the DPUs and IPUs from Arm, Nvidia and Intel

August 25, 2021

The emergence of data processing units (DPU) and infrastructure processing units (IPU) as potentially important pieces in cloud and datacenter architectures was Read more…

AMD-Xilinx Deal Gains UK, EU Approvals — China’s Decision Still Pending

July 1, 2021

AMD’s planned acquisition of FPGA maker Xilinx is now in the hands of Chinese regulators after needed antitrust approvals for the $35 billion deal were receiv Read more…

Google Launches TPU v4 AI Chips

May 20, 2021

Google CEO Sundar Pichai spoke for only one minute and 42 seconds about the company’s latest TPU v4 Tensor Processing Units during his keynote at the Google I Read more…

Leading Solution Providers

Contributors

HPE Wins $2B GreenLake HPC-as-a-Service Deal with NSA

September 1, 2021

In the heated, oft-contentious, government IT space, HPE has won a massive $2 billion contract to provide HPC and AI services to the United States’ National Security Agency (NSA). Following on the heels of the now-canceled $10 billion JEDI contract (reissued as JWCC) and a $10 billion... Read more…

10nm, 7nm, 5nm…. Should the Chip Nanometer Metric Be Replaced?

June 1, 2020

The biggest cool factor in server chips is the nanometer. AMD beating Intel to a CPU built on a 7nm process node* – with 5nm and 3nm on the way – has been i Read more…

Julia Update: Adoption Keeps Climbing; Is It a Python Challenger?

January 13, 2021

The rapid adoption of Julia, the open source, high level programing language with roots at MIT, shows no sign of slowing according to data from Julialang.org. I Read more…

Quantum Roundup: IBM, Rigetti, Phasecraft, Oxford QC, China, and More

July 13, 2021

IBM yesterday announced a proof for a quantum ML algorithm. A week ago, it unveiled a new topology for its quantum processors. Last Friday, the Technical Univer Read more…

Intel Launches 10nm ‘Ice Lake’ Datacenter CPU with Up to 40 Cores

April 6, 2021

The wait is over. Today Intel officially launched its 10nm datacenter CPU, the third-generation Intel Xeon Scalable processor, codenamed Ice Lake. With up to 40 Read more…

Frontier to Meet 20MW Exascale Power Target Set by DARPA in 2008

July 14, 2021

After more than a decade of planning, the United States’ first exascale computer, Frontier, is set to arrive at Oak Ridge National Laboratory (ORNL) later this year. Crossing this “1,000x” horizon required overcoming four major challenges: power demand, reliability, extreme parallelism and data movement. Read more…

Intel Unveils New Node Names; Sapphire Rapids Is Now an ‘Intel 7’ CPU

July 27, 2021

What's a preeminent chip company to do when its process node technology lags the competition by (roughly) one generation, but outmoded naming conventions make it seem like it's two nodes behind? For Intel, the response was to change how it refers to its nodes with the aim of better reflecting its positioning within the leadership semiconductor manufacturing space. Intel revealed its new node nomenclature, and... Read more…

Top500: Fugaku Still on Top; Perlmutter Debuts at #5

June 28, 2021

The 57th Top500, revealed today from the ISC 2021 digital event, showcases many of the same systems as the previous edition, with Fugaku holding its significant lead and only one new entrant in the top 10 cohort: the Perlmutter system at the DOE Lawrence Berkeley National Laboratory enters the list at number five with 65.69 Linpack petaflops. Perlmutter is the largest... Read more…

  • arrow
  • Click Here for More Headlines
  • arrow
HPCwire