Uncaged: Direct Edge Bares its Exchanges

from Securities Technology Monitor:

>>In 2,500 square feet of space, you can house a typical Radio Shack store, with hundreds of electronic products, ranging from smart phones to car security systems to MP3 players to weather radios to cables and batteries.

Or, in roughly the same amount of space, you can house a stock exchange. Or two.

Such is the case with EDGA and EDGX, the two newly approved stock exchanges owned by Direct Edge, which formally debut Wednesday in Secaucus, N.J. As competition in securities trading venues goes up, so does the drive for speed and “scalability,’’ the ability to expand rapidly and reliably.

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The economic benefits (see “Benefits, and Costs, in the Life of an Exchange”) and the prestige may be big factors. And the transformation of its alternative venues into full-fledged exchanges and the technology transformation that has gone with it may just be the price of keeping up with rivals.

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Unlike the New York Stock Exchange, you won’t see a monster-sized flag draped over where Direct Edge operates the new trading platforms that will power EDGA and EDGX. The two exchanges sit side by side, in a black wire cage inside a nondescript industrial building that could just as easily hide a distribution warehouse.

Inside the cage are 80 racks of Hewlett-Packard ProLiant servers and related memory storage units. Anywhere from two to 14 servers sit in each rack. About 200 servers, per exchange. By H-P’s estimate, this generation of “convergent” servers -- which include processing capacity, mem ory storage, networking features and energy efficiency – puts the same amount of computing power in a single box as was found in 21 boxes four years ago.

Spare servers in this cage provide immediate backup, in case of failure. A second cage with copies of the entire EDGA and EDGX trading exchanges sits in another nondescript building in North New Jersey, just in case.

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From the get-go, the new system will be able to handle 220,000 messages every second, while keeping up the pace of acknowledging each order in less than half a million. Each of the two exchanges can handle 2.5 billion transactions a day. “That is four times the capacity of even the days surrounding the Flash Crash,’’ said O’Brien. “So there is significant head room there.”

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“There is no theoretical limit” to the amount of transactions Direct Edge will be able to handle each day, Bonanno said, at these speeds.