What Wall Street wants goes down to the nanosecond

Nasdaq may use software from Stanford, Google

SAN FRANCISCO — Computer scientists at Stanford University and Google have created technology that can track time down to 100-billionths of a second. It could be just what Wall Street is looking for.

System engineers at Nasdaq, the New Yorkbased stock exchange, recently began testing an algorithm and software they hope can synchronize a giant network of computers with that nanosecond precision. They say they have built a prototype, and are in the process of deploying a bigger version.

For an exchange like Nasdaq, such refinement is essential to accurately order the millions of stock trades that are placed on their computer systems every second.

Ultimately, this is about money. With stock trading now dominated by computers that make buying and selling decisions and execute them with blazing speed, keeping that order also means protecting profits. High frequency trading firms place trades in a fraction of a second, sometimes in a bet that they can move faster than bigger competitors.

The pressure to manage these high-speed trades grows when the stock market becomes more volatile, as it has been in recent months, in part to prevent the fastest traders from taking unfair advantage of slower firms.

“The financial industry has easily become the most obsessed with time,” said Balaji Prabhakar, a Stanford University electrical engineer who is one of the designers of the new synchronization system.

Because the orders are placed from locations around the world, they frequently arrive at the exchange’s computers out of sequence. The new system allows each computer to time stamp an order when it takes place.

As a result, the trades can be sorted and executed in correct sequence. In a networked marketplace, this precision is necessary not only to prevent illicit trading on advance information known as “frontrunning,” but also to ensure the fair placement of orders.

The importance of technical advances in measuring time was underscored by European regulations that went into effect in January and that require financial institutions to synchronize time-stamped trades with microsecond accuracy.

Being able to trade at the nanosecond level is vital to Nasdaq. Two years ago, it debuted the Nasdaq Financial Framework, a software system that it has envisioned eventually trading everything from stocks and bonds to fish and car-sharing rides.

The new synchronization system will make it possible for Nasdaq to offer “pop-up” electronic markets on short notice anywhere in the world, Prabhakar said. He cited the World Cup as a hypothetical example of a short-term electronic marketplace.

“There are tickets needed, housing, people will need transportation,” he said. “Think of an electronic market almost like a massive flea market hosted by Nasdaq software.”

To go from trading equities to managing all sorts of financial transactions will require more than an order of magnitude speedup in the company’s networks of computers. It will be possible only if all of the exchange’s computers agree on time with nanosecond accuracy.

A generation ago, computing usually took place in a single mainframe or personal computer. Now it is routinely spread across thousands of independent processors.

Chip designers have long struggled to maintain the precise timing needed to order mathematical operations inside individual computing chips. And synchronizing these vast ensembles of them has become the limiting factor in the speed and processing power of what Google describes as “planetaryscale” computers.

“It’s kind of mind-boggling,” said Peter Hochschild, a Google software engineer who specializes in the challenges associated with spreading software and data across networked computers. “Inside a processor, an enormous amount of stuff happens in a billionth of a second.”