FOCUS FINANCIAL MARKETS
Issue 8, Feb/Mar 10
THE SURGE IN HOSTING AT EXCHANGE DATA CENTERS
Will the move to curtail proprietary trading by banks result in the end of high-frequency trading? Having already placed big bets around surging demand, the exchanges, their clients and third-party data an d colocation suppliers are hoping not
As the fi nancial world comes to terms with President Barak Obama’s explosive plan to order banks to cease their proprietary trading activities, the implications for algorithm-based high-frequency trading have yet to be assessed.
As DCD FOCUS went to press, the banks and stock exchanges, which are providing the data center infrastructure for such activities, had little to say as they digested the implications of the US administration’s move and awaited further details on the proposed new regulations.
But what is clear is that the surge in algorithm- based trading, and the huge infrastructure investment needed to underpin it, has opened new markets for the exchanges and colocation fi rms, altering their own, and their client’s, long-term data center investment strategies.
Commentators are saying that even the defi nitions of proprietary trading were being debated and it remained to be seen just how far the proposed changes would go.
However, that it comes at a time when high-frequency trading was already facing scrutiny by the US Securities and Exchange Commission only makes the whole issue even more important, with billions of existing and planned data center infrastructure investment dollars riding on the outcome.
What we do know is that demand for data center services from fi rms involved in electronic trading had boomed in the last 18 months and keeps growing, and providers of colocation, ultra-low latency connectivity and managed services to these fi rms are stocking up on room for capacity expansion to accommodate it.
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NYSE CONSOLIDATES High-frequency trading has turned fi nancial exchanges into specialist collocation players. New space is constantly opening, whether in New York or London – the London Stock Exchange (LSE) is even considering migrating its own equipment out of its data center to accommodate client demands.
High-frequency trading is about shaving milliseconds from transactions, and one of the simplest ways to achieve this is to physically place a server next to a trading platform.
on buildings that housed some of the existing data centers were approaching expiration.
“We had a decision to make,” says Stanley Young, chief executive of NYSE Technologies and Co-Global chief information offi cer of NYSE Euronext. “Our leases were running out.”
The company currently has six data centers in North America, and two principal facilities in Paris and London. Key US data centers are in New York, Chicago, Boston and San Francisco. The company is consolidating its data center footprint and the two new facilities (due to come online by the end of the year) are central to that effort.
800,000 ft2
Total space of two new NYSE data centers
Exchange members are pushing for more and more capacity within existing data centers and waiting impatiently for new data centers to begin operations. Once the power and cooling is in place, it is all about speeds and feeds.
NYSE Euronext, the company that operates two of the world’s largest stock exchanges, has a data center strategy that is different from some of its counterparts. It builds and operates its own data centers instead of outsourcing the task to full-time operators – a strategy preferred by others in the space.
The decision to build two new data centers in Mahwah, New Jersey, and Basildon, England, was made at a time when the market for colocation in proximity to exchange servers was on the rise and NYSE’s leases
NYSE says its new data centers will be some of the most advanced, cutting-edge facilities. And they have to be: today’s fi nancial services customers’ sophistication and needs follow the market on the same upward trajectory.
Besides the all-encompassing factor of latency, today’s electronic trading fi rms hold colocation providers to some of the highest standards than do all other types of customer. After connectivity, key areas are scalability, ease of deployment, breadth of services and security.
CAPACITY EXPANSION Scalability is crucial, as trading algorithms get increasingly complex and as customers expand their own client or partner rosters.
“Most fi rms are taking a 12-18 month projection of their compute needs,” Young says. “They’re already insulating themselves from having to upgrade or buy more capacity. They’re already building in a level of growth. Then we have the ability, in both (new) data centers, to work with users, anticipate their
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