TABB Says Capital Markets Firms are Simplifying Trading Infrastructures, Redefining the Total Area Network (TAN)

Research and Advisory Firm Forecasts $13.4 Billion in 2010 to be Spent Globally on Trading Infrastructures across Asset Classes, 41% in North America Alone

NEW YORK & LONDON--(BUSINESS WIRE)--Despite the cost and complexity created by meeting high bandwidth, low latency and global reach requirements sought by capital markets firms trading across asset classes globally, the industry’s current data center-centric server-to-server approach has actually simplified underlying networks.

“As a result, Storage Area Networks (SANs) are quickly becoming an integrated part of Local Area Networks (LANs) and lines between LANs and Wide Area Networks (WANs) are blurring. This is giving way to what TABB calls the redefined Total Area Network (TAN).”

According to new research by TABB Group, less equipment, fewer hops and robust management tools are allowing networks to actually flatten as they expand. Once implemented, explains Kevin McPartland, TABB senior analyst and author of “Data Center Networking: Redefining the Total Area Network,” servers and networks can run beautifully – “if people don’t get in the way.”

This trend toward simplification has expanded to several areas of the infrastructure where TABB forecasts that globally capital markets businesses will spend $13.4 billion in 2010 on their infrastructures across equities, fixed income, FX, derivatives, commodities and other capital markets businesses, with 41% of that investment occurring in North America alone for data servers, servers, storage and networking.

“Switches are handling much of the work once left to routers,” McPartland says. “As a result, Storage Area Networks (SANs) are quickly becoming an integrated part of Local Area Networks (LANs) and lines between LANs and Wide Area Networks (WANs) are blurring. This is giving way to what TABB calls the redefined Total Area Network (TAN).” Using the Total Area Network, he explains, network equipment and protocols will be more standardized regardless of their function, and moving data between computers will be seamless despite physical location or the underlying data type. “Those who have the money and infrastructure will see serious efficiencies that will guarantee the return on investment.”

With the server-to server model, virtualization, top-of-rack switches, 10-Gigabit Ethernet (10GE), kernel bypass and other new technological approaches in place and evolving quickly, McPartland believes that although “tomorrow’s flattened network will be simpler to manage, knowing what to deploy, how to deploy it and what to think about based on business needs will be ongoing concerns.”

He gives three examples. According to TABB estimates, in 2010 the network of every major market participant in the US will consume at least 125 terabytes of market data alone with the expectation that no microsecond is wasted and no packet is lost. Second, reducing latency within an infrastructure is centered on removing hops. In a legacy co-location environment, an order message would require 10 hops to move from the client’s order-generating server to the server running the matching engine. A flattening of the network driven by new, faster, more intelligent switches requiring fewer routers can drop the hop count to six, a 40% decrease few trading firms’ CIOs can overlook. Third, assuming a network with 100 switches, which equates to 2,400 ports (physical network connections), a full upgrade to a 10GE environment for a single firm, would cost approximately $1.25 million at a cost of $500 per port, excluding network interface cards and personnel costs for installation.

“Unfortunately, there is no perfect architecture, but by understanding the relationships between latency, bandwidth, scalability and cost,” McPartland says, “the latest and greatest networking technology can underpin an infrastructure that delivers the highest possible ROI. That technology exists today; but since money never sleeps, neither can the men and women designing the networks of tomorrow.”

The 21-page report with seven exhibits is based on conversations with trading firms, network-equipment providers, telecommunications firms and high-speed trading solution providers. It provides a detailed description of how financial services firms are utilizing cutting-edge data center networking equipment and paradigms and discusses tradeoffs between low latency and high scalability and the move to 10GE and beyond.

The new report is available for download by all TABB Group Research Alliance Equities clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, please visit http://www.tabbgroup.com, or write to [e-mail].

About TABB Group

TABB Group is the financial markets industry’s only research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager, broker, exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues. For more information, visit www.tabbgroup.com.

In January 2010, TABB Group launched TabbFORUM, www.tabbforum.com, the online community now with nearly 4,000 capital markets members, drawn from buy side and sell side firms, exchanges, regulatory agencies, academia and media, focusing on thought leadership issues covering current industry-wide topics.