Why You Can’t Trust Your Market Data Feed - Multicast Gaps

As online trading grows in popularity, trust in market data feeds is put to the test. Even the big-name market data providers experience glitches and outages that affect online stock trading across the globe. Take this 2013 Goldman Sachs glitch, for example, which sent 16,000 mispriced options orders in less than an hour and cost the company $7 million in fines. Or this 2015 Bloomberg outage that left traders without market data for two and a half hours and postponed billions of pounds worth of bond sales by the British Treasury. With the reliance on technology in today’s trading world, it can be de(b)trimental if the data is wrong. See what I did there? This blog will discuss the type of protocol that most feed providers are using to send data and how it can affect your trading.

TCP (Transmission Control Protocol) is the most commonly used protocol for data transmission on the Internet. Anytime you access a webpage, post a comment, or login to a social media account, TCP is used. This type of protocol involves two-way communication where the receiving server sends information back to the signal originator to confirm that the data was received. Sequence numbers are attached to the data packets so that the recipient can alert the sender if a data packet is dropped in transmission, duplicated upon receipt, or if packets are received out of order. If the sender does not obtain a response or if an error message is delivered, it will resend the data packets. This ensures that the data is not only received, but received in the correct order.

Most financial exchanges, on the other hand, use UDP multicast to distribute live market data to multiple destinations. UDP, or user datagram protocol, is a type of internet protocol which uses a connectionless communication that does not require feedback from the destination system to initiate data transfer. Rather than waiting on a response from the receiving server, the sending server continuously fires market information to update the recipient on rapidly changing stock prices. This one-way messaging typically does not incorporate sequence numbers and has no error correction like TCP which allows devices to communicate more quickly and reduces latency. Usually, a live stream of a game on TV or an online video game uses UDP broadcasting. For these applications, it does not matter if packets of information are dropped, duplicated, or out of order since the stream of data will continue to flow and update as the game goes on. With this type of broadcasting, speed is favored over error correction. Exchanges, however, do incorporate sequence numbers in their UDP data feeds to facilitate tracking and monitoring.

So how does this affect your online trading? Missing or out-of-sequence packets in market data feeds are called multicast gaps. These gaps allow high-value trades to happen on inaccurate or stale data and can have serious financial implications on your business. Multicast gaps not only have the potential to make you lose money on a bad trade but can also bring about regulatory compliance violations and fines. Without the appropriate tools, these gaps can go undetected by both the sending and receiving systems. In a market where millions of shares can be sold in a matter of minutes, trading with the wrong information can be devastatingly costly. Once this happens to you, how can you trust your market data feed again?Whether you are an exchange, a financial tech services provider, a broker, or an investment bank, having the detection tools for multicast gaps, duplicate data, and discontinuous packets is essential in trading. Monitoring large volumes of market data, in real time, is critical to timely detection and remediation of such issues. These tools can not only save you money, but can also pinpoint the source of an error and shorten the IT department’s time spent solving market data quality issues. My next blog will cover the industry’s current approaches to market feed monitoring and their limitations.

In March of 2018, Ixia partnered with Options Technology to provide market data feed monitoring for their Managed Colocation solution. Read the press release here.

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