Irish number crunchers capture The City

22 Oct 2007

Several years ago a group of business-savvy mathematicians in Dublin came up with a plan to turn the world of telecoms on its head. It emerged today that not only have they succeeded in that goal but their invention is to be used to speed up trading on the London Stock Exchange and other financial markets.

Corvil was founded in 2000 when a group of mathematicians in Dublin Institute of Advanced Studies (DIAS) developed algorithms that would make data traffic run faster.

The company, which has since raised a total of €40m in funding, including investments from ACT Venture Capital, Apax Partners and networking giant Cisco, has struck a major deal with the London Stock Exchange to power one of the major shifts affecting the financial trading world.

The Exchange is to deploy Corvil’s TradElect platform to speed up trading and thereby attract increased business.

Trading floors used to be populated by stressed out traders in colourful jackets with their own system of hand communication and yelling.

However, hand signals have been replaced by gadgets, the speed of trading has increased and today it is all done online. The shift to algorithmic trading is one of the most significant developments in the financial services world.

In this new environment the likely success of executing a trade is inversely proportional to the latency encountered in data networks. In other words, if a signal to buy or sell is held up by a blockage on the networks, it could mean the loss of millions in equity.

Equity exchanges that offer the lowest latency and ability to handle spikes in trading volume present the most profitable and lowest risk environment for the modern trader.

“Today’s internet protocol (IP) networks are a two-legged stool,” Corvil chief executive Donal Byrne explained. “If you sit crooked, they fall over. The financial services world needs to have precise and accurate measurements. Removing latency or delays on a network is the new proxy for the arms race in the financial sector.”

Byrne said that the bellwether for the networking industry today is the services world. “It’s the equivalent of the Mercedes S500 – when technology goes into that car, five years later its in every Toyota. In terms of high-speed networking, the financial services world is ahead of everyone else. But eventually the technology ripples through to other verticals like telecoms for consumers.

“The trading boys typically have the best gadgets. But of late these guys have figured out that there’s been a huge change in their industry – the move to electronic trading. It has moved from guys on floors with crazy hand gestures to guys on machines trying to cream off huge profits for investors.

“If you look at the people making the big money in the financial world – they keep electronic algorithms in their heads and won’t write them down because they’re so valuable. What they’re looking for is the person writing the algorithms on when to trade electronically … billions of dollars are traded this way on a daily basis.

Algorithmic trading environments, require end-to-end network latencies of less than five milliseconds with no packet loss.

“A millisecond can make all the difference. Shaving milliseconds of latency off networks can make the difference in terms of millions of dollars in margin.”

Byrne said Corvil’s future business will be shaped by new financial regulatory instruments like the RegNMS (Regulation National Market System) in the US and MiFiB (Market in Financial Instruments Directive) in Europe.

“A large part of what this is about is ensuring fairness in electronic trading environments for the buyer.

Byrne said that Corvil’s plan is to focus on the financial services opportunity but he foresees a strong future for algorithmic technologies in the enterprise IT world and in consumer markets such as next-generation video downloading.

He adds that the company’s technology is currently being deployed as part of Cisco’s TelePresence video conferencing systems which are being pitched at the corporate and SME world.

By John Kennedy