Where to Connect: Choosing the Right Data Center for Trading
Direct Edge’s Kevin Carrai explains how they chose their new data center and what criteria were most important in making the decision.
Choosing the right data center is crucial to the success of any trading business. Gone are budgets supporting the practice of co-locating with every market center, which forces firms to take a closer look at how to optimize their connectivity and infrastructure without sacrificing performance or profits. In addition, firms now have more options than ever for where to host their IT infrastructure given the growth in the data center landscape driven by high frequency electronic trading, especially in northern New Jersey. There are several important things to consider when making this critical business decision - proximity to liquidity, cost savings, flexibility and scalability.
Proximity to Liquidity
Anyone familiar with the real estate market knows that the three most important factors are location, location and location. However, the factors that make one location better than another may change over the course of time. At one point in life, proximity to bars and restaurants may be a priority; after starting a family or getting a pet, proximity to good schools and parks may become more important. The same holds true when you are finding a home for your trading infrastructure. In the heyday of high volumes and deep pockets, firms colocated in multiple facilities regardless of cost in order to be as close as possible to liquidity destinations. In today’s trading environment, firms are reconsidering this need and are looking for a facility where they get the biggest ‘bang-for-their-buck’.
The New York/New Jersey/Connecticut tri-state area has become the location of choice for data centers that cater to the U.S. financial markets.Within this geographic area, if firms cannot be everywhere, where should they be? It is more advantageous for firms to be in a centralized location, where they can access many financial resources rather than duplicating their infrastructure at multiple data centers. Facilities that host companies who provide the same services foster healthy competition, thereby forcing vendors to improve functionality and curb costs.
Proximity to competitors, dark pools and other liquidity destinations was a key feature that attracted Direct Edge, a U.S. equity exchange that currently trades more than 9% of total consolidated volume, to NY4, an EQUINIX data center. Other market centers that have also chosen NY4 include International Securities Exchange (ISE), Hotspot FX, Boston Options Exchange (BOX) and CBOE’s new C2 Options Exchange. Having other liquidity destinations just a cross-connect away enables Direct Edge to have a robust, high performing, efficient connectivity infrastructure at a low cost.
Not only does NY4 provide proximity to a multitude of resources internally, it is well positioned physically in the NYC area. The latency between EQUINIX’s NY4 facility and Savvis, a third-party data center that hosts major exchanges and dark pools, is less than 100 microseconds.
Cost Savings
Recent conventional wisdom has been that in order to ensure profitability, trading firms had to have a presence in every data center where there was accessible liquidity. As the number of market centers increased, so did the expense required to install and support trading and telecommunications infrastructure within each facility. Firms would gladly pay the increased expense while volatility and volumes were high, but they are now taking a hard look at this strategy.
In these uncertain market conditions, firms are more cost-conscious than ever. In order to remain profitable, firms have significantly reduced technology and telecommunication spending and can no longer support the trend of co-locating their trading infrastructure in every facility. With the increasing premiums imposed by many exchanges for co-location space, trading firms are trying to save money by reducing their footprints and minimizing hand-offs. Therefore, the selection of a few key facilities, or one facility, has become a realistic alternative to multi-facility co-location, especially with the advent of low latency connectivity between market centers.
