Chicago Board Options Exchange

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The very nature of options trading has major implications on the industry’s (exchanges, vendors, firms, etc.) IT systems. Due to the nature of options contracts (with a series of different prices and expiration dates), as many as 500 different contracts can be associated with one individual stock. As prices in the underlying stock fluctuate, changes in each option contract within that series will be adjusted immediately. On an average day, CBOE will trade approximately four million contracts and disseminate nearly one billion price quotes during trading hours.

The use of the options product as an investment vehicle has also been expanding on two fronts, driving the growth of the industry. One, large financial institutions and money managers are increasingly utilizing options as a way to manage risk, reduce volatility and generate returns for their portfolios. And two, more individual investors are learning about options. As a result, there has been a proliferation of boutique trading firms founded to cater to this growing segment of retail traders.

The major objectives for CBOE’s IT department include providing 100 percent system availability, ensuring highly responsive systems and managing overall business growth. Around the clock, CBOE measures transaction latency in milliseconds for its production systems and constantly tests new configurations to continually improve response times. Presently, CBOE disseminates 117,000 quotes per second.

CBOE relies on Sun technology and services (including Java technology, the Solaris 10 Operating System, Sun server and storage solutions) to help it maintain its market leading position. In 2000, the Exchange implemented Java to develop its screen-based trading in conjunction with its floor operations. By providing a “best of both worlds”approach, this Hybrid Trading System has differentiated CBOE from a crowded field of competitors. The realized success of this system can be attributed to Java’s portability, virtual machine throughput, reduced development times and fine-grained tuning capabilities. Recently, CBOE implemented a full technology refresh and will be using Java to migrate other applications to its open systems environment.

The Solaris 10 Operating System provides the stable environment required to run the many different dimensions associated with CBOE’s state-of-the-art trading platform. CBOE employs the DTrace functionality of the Solaris 10 OS to identify and remove bottlenecks. Utilizing DTrace and Sun engineering professional services, the Exchange was able to optimize application code for its systems. In addition, CBOE improved its already excellent millisecond response times by more than 600%. Currently, CBOE is testing Solaris Containers as a flexible and highly available solution for scaling its environment and housing multiple applications per server.

Sun x64 and UltraSPARC servers comprise most of the CBOE’s open systems IT environment that achieves 99.999 percent availability. Roughly 70 clusters house 700 high-performance Sun Fire X4600, Sun Fire X4200 and Sun Fire X4100 servers. According to CBOE Executive Vice President and Chief Information Officer, Gerald T. O’Connell, Sun has become a trusted server brand for the Exchange due to the continuous performance improvements he sees in the server line. Each year, he refreshes his environment with new, faster Sun servers. O’Connell also estimates this open systems environment reduces costs by at least 20 percent due to the flexibility of open systems.

Storage is another essential component central to CBOE’s IT performance, as the Exchange records information on up to three billion transactions per day using its Oracle 9i databases—and this data volume is growing! The online information alone totals more than 700 terabytes, making the dependability of the Sun StorageTek 9990 system, which provides high-performance storage in a virtualized environment, crucial for the Exchange. A range of failover and redundancy processes are used to ensure that data is always available. In addition to its online storage, CBOE has over 1 petabyte of data on its Sun StorageTek tape drives.

Completing the solution is SunSpectrum Support, which provides onsite services to address any problems. CBOE’s O’Connell says that the service has worked very well for the Exchange. The Sun support staff is attentive to the Exchange’s needs and incredibly responsive to any issues that arise. Their expertise and counsel has proven to be invaluable, particularly when time is of the essence.

The Chicago Board Options Exchange competes in a business arena where multiple exchanges generate massive amounts of data and create an insatiable demand for speed. CBOE has built one of the most robust trading environments in the industry, and by partnering with Sun, the Exchange is in prime position to maintain its leadership position in the U.S. options industry for years to come.