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Issue of November 2002 
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Special Feature: Online Trading Infrastructure
A successful trading architecture

Online exchanges facilitate faster transactions by providing online trading portals and brokerage houses ease and flexibility. Here's a look at the core infrastructure of NSE, BSE, and some trading portals. by Soutiman Das Gupta

As promised by technology visionaries and forecast groups over the last decade, the Internet has indeed opened up new avenues for conducting business. Stock exchanges worldwide now conduct a bulk of its business online through its brokers and partners, a major shift from the traditional method. In developed countries, almost all exchange transactions are conducted online. The trend has slowly picked up in India and two of the largest exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have been conducting online trade successfully for sometime now.

Why late?
Indian exchanges and brokering houses have been slow to move their transactions online. This has been mainly due to Government regulations. There was initial delay in laying down specifications for creating Closed User Groups (CUGs). The issue was resolved between the DoT and the Finance Ministry around 1998 and soon trade portals like ICICIDirect.com, motilaloswal.com, and smartjones.com came into being.

Connectivity was perhaps the most important technological factor. The cost of leased lines and VSAT links has been traditionally very high and the reliability of the links has been low. It also took a long time to commission the links as one had to make an application and wait for a few weeks for the link to be up and running. Other issues like security, and backup and recovery procedural costs were also deterrents.

Thankfully, along with the resolution of regulatory issues, India no longer has any pressing connectivity and bandwidth issues. With, the entry of private players into the broadband scenario and the government opening up the telecom sector, these issues are almost non-existent. Security solutions and services available in the market have matured and it doesn't cost a pretty packet anymore to put a simple backup solution in place.

Anatomy of an online exchange

Online trading involves large volumes of data being transacted everyday. Just as an example, at BSE the average daily turnover in 2001-2002 (April-March) was Rs 1244.10 crore and the number of average daily trades was Rs 5.17 lakh.

Added to this there are stringent RBI regulations that makes it mandatory for companies to store at least 7 years of transactional and financial data.

  • Design Needs to be always-on, secure, redundant, and have adequate backup and recovery processes.
  • Storage For such high amounts of critical data it's natural to deploy network-based storage like NAS or SAN.
  • Security Security is a vital and integral part of the design architecture. The hardware and software elements should be built around a layered security architecture and should be held in place with a well-documented security policy.
  • Availability Ideally online exchanges should have 'five-nines' availability.
  • Applications It's difficult to deploy out-of-the-box applications at exchanges as each has a unique architecture based on factors like operations flow, trading volumes, number of members, number of users, and number of locations.
  • Architectures NSE has deployed NIBIS (NSE's Internet Based Information System) for real-time dissemination of trading information over the Internet and NEAT a client-server-based application to help its operations.

BSE has deployed an OnLine Trading system (BOLT) on a Tandem platform which has a two-tier architecture. It claims to be able to support up to 2 million trades a day.


Click on image for larger view

Indian exchanges
The NSE and BSE are among the largest exchanges in the country. They handle very large daily trading volumes, support large amounts of data traffic, and have a very large nationwide network.

The trading volume figures in both the exchanges are huge. The average daily turnover in the capital markets segment at NSE is around Rs 2300 crore and in the derivatives segment, around Rs 1300 crore. The average daily traffic volume is around one million trades per day in the capital markets segment and around 50,000 trades per day in the derivatives segment. There are around 13,000 registered users in both segments and an average of around 9500 users are logged in at a time.

At BSE the average daily turnover in 2001-2002 (April-March) was Rs 1244.10 crore and the number of average daily trades was Rs 5.17 lakh.

Network design
Needless to say, any online exchange needs to be always-on, secure, redundant, and have adequate backup and recovery processes. G.M Shenoy, VP, NSE-IT, talks about the design philosophy of his online exchange. "The basic design objective was to provide fair, equal, and transparent access across all our nationwide locations. An important aspect was to provide connectivity to our trading members as soon as possible."

"The telecom sector is fairly liberal today. Back in 1993, the technology was maturing and was costly. Leased lines cost almost ten times as much as it does today. Satellite technology was a boon since it allowed quicker deployment than leased lines. NSE now has the country's largest VSAT network with over 3000 VSATs and expects to grow to more than 4000 VSATs soon."

Network elements
A look at the massive trading volumes and traffic bulk is enough proof of the critical nature of systems. It makes one shudder to think of the expected losses in case of a ten minute downtime when daily trade crosses Rs 3000 crore. Network elements like storage, security, backup and recovery processes, availability, and the different applications must be carefully planned and commissioned. Then one has to follow stringent RBI regulations to store at least 7 years of transactional and financial data.

Storage For such high amounts of critical data it's natural to deploy network-based storage like NAS or SAN. NSE is implementing a SAN as it feels that its data volumes have grown 'phenomenally'.

Security This should be a vital and integral part of the design architecture. The hardware and software elements should be built around a layered security architecture. And it should be held in place with a well-documented security policy.

Shenoy says "Security is the most crucial element in the network. All applications have been built with a conscious approach towards security. The security policies are tightly integrated and regularly scrutinized to leave no room for compromise. All the applications and OSs are hardened periodically for safety."

Backup and recovery This has emerged as one of the vital aspects of business continuity. When online exchanges were designed a few years ago, perhaps a lot of emphasis was not placed on this aspect, as it is today. However it's not difficult to add business continuity processes to an existing network.

Shenoy says, "As a backup to our VSAT network, a terrestrial-based trading network was deployed in the middle of 2000. We have more than 850 leased lines connecting our nationwide locations. We are the only stock exchange in the country to have a fully-redundant business continuity site in Chennai."

Availability Ideally online exchanges should have 'five-nines' availability. Exchanges usually prefer to host its infrastructure in-house and not use the services of an external data center.

NSE claims to achieve uptime greater than 99.9%. "This is mostly due to internally formulated procedures and continuous review of SLAs with hardware vendors," says Shenoy.

Applications It's difficult to deploy out-of-the-box applications at exchanges as each has a unique architecture based on factors like operations flow, trading volumes, number of members, number of users, and number of locations. The applications like trading, clearing, risk-management, surveillance, index computation, listing, membership, and accounts may be developed in-house or by external software developers.

The 'big two' architectures
NSE and BSE, the 'big two' exchanges believe in updating and upgrading its technology systems to keep delivering according to commitments and promises made to its members, partners, and customers.

NSE architecture - NEAT
NSE has deployed NIBIS (NSE's Internet Based Information System) for real-time dissemination of trading information over the Internet and NEAT a client-server-based application to help its operations.

NEAT stores all trading information in an in-memory database at the server end to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault-tolerant STRATUS mainframe and the client software runs on Windows PCs.

The telecommunications network uses the X.25 protocol and is the backbone of the automated trading system. Each trading member trades on the NSE with other members through a PC located in the trading member's office.

The trading members on the Wholesale Debt Market segment are linked to the central computer at the NSE through dedicated 64 Kbps leased lines and VSAT terminals. These leased lines are multiplexed using dedicated 2 MB optical-fiber links. The WDM participants connect to the trading system through dial-up links.

The exchange uses RISC-based Unix servers from Digital and HP for backoffice processing. Applications like Oracle 7 and SQL/Oracle Forms 4.5 front ends are used for the exchange functions.

BSE architecture - BOLT
BSE has deployed an OnLine Trading system (BOLT) on March 14, 1995. It works on a Tandem S74016 platform running on 16 CPUs. The Tandem Himalaya S74016 machines act as the backend to more than 8000 Trader Workstations networked on Ethernet, VSAT and Managed Leased Data Network (MLDN). The systems claim to handle up to two million trades a day.

BOLT has a two-tier architecture. The trader workstations are connected directly to the backend server which acts as a communication server and a Central Trading Engine (CTE). Other services like information dissemination, index computation, and position monitoring are also provided by the system. A transaction monitoring facility in the Tandem architecture helps keep data integrity through non-stop SQL.

With the help of MTNL, BSE has setup a MLDN Network comprising 300 2 Mbps lines and 1500 64 Kbps lines which connect all regional stock exchanges and offices in Mumbai. Access to market related information through the trader workstations is essential for the market participants to act on real-time basis and take instantaneous decisions. BOLT has been interfaced with various information vendors like Bloomberg, Bridge, and Reuters. Market information is fed to news agencies in real time. The exchange plans to enhance the capabilities further to have an integrated two-way information flow.

Online trading portals
Online trading is the investment activity that takes place over the Internet without the physical inclusion of the broker. An end user (investor) has to register with an online trading portal like ICICdirect.com, motilaloswal.com, smartjones.com, and sharekhan.com. The investor thus gets into an agreement with the firm to trade in different securities according to the terms and conditions listed down on the agreement. Since the servers of the online trading portal are connected all the time to the stock exchanges and designated banks, order processing is done in real time. Investors can also get updates on the trading and check the status of their orders either through e-mail or through the interface.

Portal design
Harish Malhotra, Chief Technology Officer, Motilal Oswal Securities Limited, says "the portal should be simple to navigate, full of useful and relevant information which is available with the lowest number of clicks, and should be personalized." However a very important aspect is that the systems should be able to interface directly with that of the online exchanges without incompatibility issues.

ICICIdirect.com uses 128-bit encryption enabled Secure Socket Layer (SSL) to ensure that the information transmitted across the Internet is safe and cannot be accessed by a third party.

Users are usually given options to link their bank accounts, Demat accounts, and brokerage accounts into a single interface. There is also a single window for all exchanges and a single screen for the complete order routing mechanism. The hardware used comprises Web and application servers, switches, routers, firewalls and security devices, and specialized appliances.

Motilaloswal.com uses Compaq servers for applications and database, Cisco routers, and Checkpoint firewalls. The systems have been customized by its in-house team. The trading applications are outsourced. "We also have offline storage which is backed up periodically at separate locations," says Harish.

Portal success
The success of a trade portal will definitely depend on its bouquet of services for an end-user. Most portals charge a small registration fee and brokerage based on various conditions. However it's important for the organization to keep focussed on customer-centric services and delivery models to actually enjoy the most attention.

Soutiman Das Gupta can be reached at soutimand@networkmagazineindia.com

 
     
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