Carrier Hotels: where FX checks in for co-location services
One possibility is a bank-type consortium. Tere are also other potential venues which are likely to review their dependency on the banks and say we should work more closely with the hedge funds and the HFT guys.”
Te formation of new FX trading venues and subsequent increase in demand for co-location and proximity hosting services will, Misra predicts, benefit the providers of carrier-neutral data centres, which can leverage their economies of scale, specialist technology and expertise. “Although certain brokerages also offer co-location services, firms prefer an independent and neutral co-location service that is not in a contract with any select execution venue or telecommunication network,” writes Sankar of Celent. “Tis neutrality is key to achieving best execution. Hosting the applications in the data centres enables low latency access to market data, a crucial component of HFT strategy.”
Bob Giffords
“An appropriate extranet with a large global footprint will probably already be in the relevant co-los you want to use, so you can just buy cloud capacity, download your software and go, all in a couple of days.”
Reuter of BT Global Banking & Financial Markets says FX trading participants are using Infrastructure- as-a-service (IaaS) to test market acceptance of new services, which once successfully tested are migrated on to a hybrid or dedicated infrastructure model.
New trading venues
Misra expects demand for such co-location services in the FX market to increase over the next 18 to 24 months, spurred by competition among liquidity providers to offer new trading venues. He points out that high-speed trading in FX is still being inhibited by structural barriers in the FX market.
“In FX there is a reliance on bank pools. Execution can be a lot slower than equities. Banks don’t like guys [hedge funds and HFT firms] picking them off and then arbing them on platforms such as EBS,” says Misra. “You might see an additional concentration of liquidity on to an exchange-like environment, with FX trading a bit more like equities. Tere are venues out there that want to facilitate that and effectively take some of that concentration away from the bank pools.
Conclusion
Membership of a global data centre provides trading firms with the agility to adapt to rapidly changing conditions across global FX markets. Asia in particular appears poised to become a growing hub for FX trading. As the health of the global financial system looks set to remain in a perilous state, the flexibility and capacity to obtain high-speed connections to a diverse range of trading venues will become all the more crucial in markets where only the strong survive.
“FX trading firms are looking for a partner that is as agile and flexible as they are themselves, allowing them to adopt to new market conditions rapidly,” says Reuter of BT Global Banking & Financial Markets. “By utilizing IaaS and more likely a hybrid – dedicated and shared infrastructure – approach, customers in addition keep their cost under control and can obtain low-latency access between venues of interest on a global scale.”
Lastennet of Interxion expects FX trading venues in the future to engage in more partnerships with various data centres and vendors specializing in cloud technologies. “If you look at how technology is evolving and the emphasis. Trading venues are extending services using carrier neutral data centers to host their engines and focus on their core business, the provision of liquidity and running organised markets,” he says.
january 2012 e-FOREX | 119
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