If You Live In Basildon - Your Ok - Otherwise Adapt Or Die

Discussion in 'Financial Futures' started by THE-BEAKER, Oct 1, 2009.


    High-speed traders keep their technology close by

    By Michael Mackenzie and Jeremy Grant

    Published: September 30 2009 03:00 | Last updated: September 30 2009 03:00

    Thirty miles outside London near Basildon in Essex, a hangar-shaped building big enough to accommodate three football pitches sits in a featureless industrial park.

    Inside, NYSE Euronext, parent of the New York Stock Exchange, is building what it hopes is the exchange of the future.

    It is a far cry from the noisy trading floors of New York.

    Racks of computer space sit in vast, bomb-proof, air-conditioned halls. They will contain the electronic trading "engines" that allow millions of trades in equities, options and futures contracts to change hands every day on NYSE Euronext's platforms.

    Next door, other halls are being fitted with metal cabinets to accommodate computer servers belonging to banks and other trading firms that typically bring orders to an exchange's matching engine.

    Across the Atlantic, in Mahwah, New Jersey, a similar building has already taken shape, containing 150 miles of copper wiring and 70 miles of underground piping.

    Just as in Basildon, the banks of circuit breakers and cooling units are supporting a bigger gamble than any trader might make.

    NYSE Euronext hopes that by offering traders the chance to be physically close to the exchange's core trading technology - to "co-locate" in the industry jargon - the exchange will help traders shave crucial milliseconds off the time it takes for a trade to be done.

    If traders are located 100 miles away from an exchange, they face a delay of one millisecond whenever they seek to trade a price via their computer screen. Few serious investors can afford to be that late to prices that flash so quickly.

    The blink of a human eye takes 300 milliseconds; many traders now operate in the smaller realm of microseconds.

    Being faster than rivals to the best price - that is, having the lowest "latency" - is thus crucial in today's markets. High frequency trading relies on this type of trading and, on some days, accounts for more than half of US equities trading.

    That means any exchange offering the most traders the chance to co-locate near its trading engines stands the best chance of harvesting the most orders. For NYSE Euronext, this makes even more sense since it is the world's largest "multi-asset" exchange, offering not just equities but options and futures.

    "Co-location and latency have become critical business drivers," says Stanley Young, chief executive officer of NYSE Technologies. He claims that the exchange will offer latency of just 75 microseconds once the New Jersey operation is up and running at the end of next year.

    Placing a server next to an exchange's hub is also the next battleground between exchanges and electronic trading platforms in the increasingly competitive and fragmented markets that now define equity trading.

    Yet co-location has opened the door to criticism that only investors with deep pockets can afford to co-locate and keep upgrading their systems.

    Besides access, there are also calls for greater transparency about the fee structure and assurances that certain spots inside a data centre do not favour some servers over others.

    "Co-location is a legitimate business and levels the playing field for investors in different physical locations, but I believe we need to have as much transparency about the pricing of such a service as possible," says William O'Brien, chief executive of Direct Edge, a smaller US trading platform.

    Co-location already is being scrutinised by the Securities and Exchange Commission. It is examining trading strategies and market structures that rapid technology developments have spawned.

    Larry Leibowitz, NYSE Euronext's head of US execution and global technology, says: "The fees that are charged for co-location are relatively low compared with the charge that a firm faces in its trading infrastructure. It will be transparent."

    NYSE Euronext was working with the SEC on the issue, he said.

    Robert Greifeld, chief executive of NYSE rival Nasdaq OMX, said in a recent FT video interview he expected the SEC to regulate co-location. "That means that every one of our customers has equal access to the data centre, every single one of our customers pays the same rate; we have a rate card available to our customers," he said.

    Mr Greifeld said there might have to be measures to ensure speeds within the co-location facilities were the same. "We might have to give everybody the same length cable, believe it or not," he said.

    Nasdaq leases server space in New Jersey, which it sees as a more cost-effective approach, having abandoned building its own data centre about five years ago.

    Direct Edge will, at the end of the year, use a data centre owned by Equinix. Rival BATS Exchange has its headquarters in Kansas City, but to minimise latency uses a data centre in New Jersey.

    NYSE Euronext declines to say what its new facilities cost. Mr Leibowitz says both data centres are shells that will only be "fully fitted and built out" with technology once demand reached certain phased levels. "A good percentage of the costs are only expended if we get demand for the next amount of space."

    In an added twist, NYSE Euronext has offered the opportunity for other exchanges to use its co-location facilities. "We are not looking at locking anyone out of the data centre," says Mr Young. "Our data centres are open to all participants, with a published fee schedule, but co-location is not just about price . . . resiliency, capacity and performance are other critical factors for a low latency high performance data centre."

  2. Shagi


    To some of us milliseconds - dont affect the results

    Heck - we even trade with delayed data and still beat the nano second traders day in day out for years :D
  3. Latency is already 0 as far as i'm concerned.

    If you're micro scalping, I guess that matters.

    I realize I'll never win that game.
  4. What a waste of effort. This contributes nothing to real economic growth and is just evidence that the private sector is capable of the same kind of inefficient idiocies as the public sector.
  5. Their activity makes it possible to buy stock for 1 cent per share instead of 50 cents. That is something the government could never accomplish no matter how many billions were spent.
  6. I like making money from trading, but let's not kid ourselves, decreasing commissions has added absolutely nothing - zero - nada - to meaningful economic growth.

    If anything, it's made things worse by suckering J6P into thinking his 401k should be in the equity markets.
  7. maxpi


    Come the revolution we will turn those computers to making the perfect society, the worker's paradise.. until then we must be content with stealing Mercedes from the parking lot...