If I want to connect to a US stock exchange (e.g. BATS) via VPN (Not using physical port and cross-connect), what is the cost for this setting? Alternatively, I am looking for $1/1000 shares commission. What is the volume to get that level of commission? 1M shares per month?
Tony, You can't connect to an exchange though a VPN. You have to connect though a member firm, and that member firm needs risk checks. So you need to connect either though an API, to a member's BD route or a FIX connection though a messaging service that has those risks checks, to the member firms routing. The broker also has to produce a regulatory report each day called OATS, that the API or the messaging service help produce. If you are looking for low latency, you need to be at NY4 with that cross connect, which cost $500/month. You can connect to your server at that location though VPN. The VPN connection is normally included in the cost of the IT hosting company's charge. As for cost, the only way to get 10 mils these days is from a prop firm and I have no idea how much volume you would have to do to get 10 mils. At 1M/month, 10 mils is only $1000/month is gross commissions. I think all those firms that did that in the past are out of business. 1245
Hi, 1245, thanks for the answer, especailly on the burden part of direct connect. Is 10 mils for 5M/month or 20 mils for 1M/month possible?
Just wanted to add, even if you are a member firm it is very unlikely (i.e. I have not heard of such a thing but it's not impossible) that the exchange will let you connect via VPN except for testing purposes. Tony, what are you trying to accomplish with this setup?
Can we bypass the broker and its per share commission structure by connecting to exchange via VPN directly? What is the cost for such setup? Could it be cheaper than paying commission to a broker? For the highest volume HFT firm, I guess they must be use their own connection, without using broker.
Theoretically yes you could register as a broker dealer, self clear and do your own executions. Practically you have to pay the clearing firm to clear your trades anyways, and you have to pay for the third-party risk check required by current regulatory framework. (Some clearing firms may let you write your own risk check if you pay them enough money or post a large enough bond). In any case this would cost a lot in terms of time and money and I am guessing if you are running 1mm shares / mo and worried about $500 / mo cross connect cost you are not close to the scale required for this type of setup. Also I am wondering why you need 10 mils? Do you need this cost structure for your strategy (which you wouldn't really know unless you were already running such a strategy successfully) or is there a fixed per-month cost you do not want to go over?
You need to be a member of that exchange to by-pass using a broker to access the ECN/exchange. To do that, you will have to be an SEC registered BD and find a Clearing firm as a clearing agent and guarantor. That clearing agent will still charge you a per share fee but it will likely be much lower than a "customer"account. But then you will have the cost of the BD infrastructure and compliance with regulators. Not fun. 1245
running a broker dealer is a mayor pain in the neck... (and as explained by others above, that's a requirement if you want to connect directly to the exchange) it may be easier to shop for a new broker... depending on the volume you are trading per month, you may not get down to 1mill but you could get closer than you do with your current broker.
I guess I mixed the thing. I agree that it is not feasible on my current volume. Anyway, I think it is a good research to know what the minimum cost will be if direct connect to an exchange. So the fee are clearing fees, how much? risk check fee, how much? BD infrastructure? I only need a VPN for trading, and cut off all other fee, like cross-connect, how much? Did I miss other major fees? Well, I think it is no fun to pay $2000 commission every month to IB based on my current day trading volume, and could pay much much more in the future if I add a scalping strategy. I really do not want to hand in $10K commission to the broker every month.
To get a clearing company to allow you to do it requires at least $500k in capital if you have a relationship. BD costs amortize to about 10k/ month if it's super simple. But you'd have to take series 24. Hosting will set you back 2-3 k per month. Exchange data fee around 3k. Startup costs. Server 7-10k. Trying to read the exchange direct market fee. 50k. Not a good option. There are cheaper brokers than IB. Persue that route instead