OPRA Data Traffic, Bandwidth Projections to Double, Driven by Weekly Options, Volatility

The Options Price Reporting Authority has updated its projections for options data traffic and bandwidth requirements for 2012 and 2013, predicting that the number of messages per second and the bandwidth required to handle OPRA’s consolidated feed of US options quote and trade data will almost double by this July over figures for the same period last year.

Direct OPRA feed subscribers will need capacity to handle 10.2 million messages per second (mps) by July of this year—compared to the 5.26 million mps predicted for July 2011 by OPRA at the start of last year—and 12.7 million mps by July 2013, according to a notice distributed to data recipients by OPRA executive director Joe Corrigan at the end of January.

As a result, OPRA projects that firms will require 2.45 Gigabits per second (Gbps) of bandwidth to manage the feed, representing year-on-year growth of 93 percent over the July 2011 requirement of 1.27 Gbps, before slowing to a growth rate of 25 percent between 2012 and 2013, when firms will need 3.06 Gbps of bandwidth.

The rise in message traffic reflects growing options trading volumes, driven in particular by a surge in short-term options trading during 2011 as exchanges began listing more options series that expire on a weekly basis, says Andy Nybo, principal and head of derivatives at research and consulting firm Tabb Group. Weekly options series were introduced by the Chicago Board Options Exchange in 2005 for its proprietary indexes, but remained a mainly institutional-level instrument with limited volumes until 2010, when exchanges began listing short-term options on single stocks, concentrating on large-cap stocks and more liquid instruments.

Over 2011, the popularity of short-term options increased, given their effectiveness in managing short-term risk exposure, attracting institutional and retail investors, as well as quantitative traders and market makers, Nybo says. “Data volume tends to be very high in the weekly options because they enable faster trading strategies, which by their very nature require more quote updates and more quote revisions.”

Jeff Wells, co-chair of the Financial Information Forum’s market data capacity working group and vice president of product management at ticker plant vendor Exegy, agrees that traders have become “more comfortable with using derivatives and options to hedge their risks as well as to take positions,” adding that this has enabled traders to “weather the storm of volatility” that has engulfed the financial markets since 2008.

And Wells expects continuing volatility to keep driving data rates up. For example, he notes that last Tuesday, Jan. 31, the peak on MarketDataPeaks.com—a portal of historical peak data volumes—was 5.71 million mps, of which 3.95 million messages were from the OPRA feed, 1.16 million from NYSE Arca Options, and 600,000 messages from other order book feeds. This high level of activity resulted from the release of housing and consumer confidence numbers. “If you look at the Dow [the Dow Jones Industrial Average index], it was going down, and then it changed directions and went up when the figures came out. With that directional change, all these options were then completely re-priced,” he says.

However, the growing data volumes are not limited to the options market. The UTP Operating Committee—which is administered by Nasdaq—also recently increased bandwidth allocations for its consolidated UTP Quotation Data Feed from 96 Megabits per second (Mbps) to 175 Mbps, representing an 80 percent increase in bandwidth. This increase comes into effect today, Monday, Feb. 6.

A Nasdaq spokesperson says that the Operating Committee decided to increase the UTP QDF bandwidth to support about 300,000 mps because message rates were approaching the maximum throughput rate of 175,000 mps.