Europe is on the verge of an explosion in the number of firms conducting high-frequency trading strategies in its equities and derivatives markets, according to Lilia Severina, proximity hosting director, finance and capital markets, at European co-location and data centre service provider Interxion.
Ongoing reductions in the cost of ownership for the trading infrastructure required to conduct low-latency strategies are enabling traders to establish new high-frequency hedge funds and proprietary trading operations across the continent, she claims. And Severina should know. Interxion operates data centres in 11 countries across Europe and reports a healthy flow of business in Spain, Italy, Switzerland and – particularly since Nasdaq OMX’s installation of the high-speed INET platform at its European exchanges – in the Nordic / Scandinavian region. “This fragmentation and innovation by market participants is due to the lower cost of technology,” Severina asserts. “If you want to trade on just BATS and NYSE Euronext, for example, start-up costs can be pretty cheap.”
Interxion has played its part in the reduction of trading infrastructure costs. Although its data centres provide co-location, connectivity and managed IT services to a wide range of organisations – from charity UK Cancer Research to Coca-Cola – asset management and investment banking customers also benefit from the diversity of securities markets technology and communication services providers among Interxion’s client list.
For example, the firm’s London data centre, housed just east of the City at the former Truman’s Brewery on Brick Lane, offers financial markets participants on-site access to the services of more than 30 telecoms carriers and at least half a dozen market data providers, as well as multiple other firms whose services support high-frequency trading. This means that Interxion’s trading clients, whether buy- or sell-side, achieve the benefits of competition, while the service providers gain access to a pre-qualified customer base. “It’s a community model,” says Severina.
The firm’s value proposition to financial markets participants relies on wringing every microsecond out of the technology and communications infrastructure that supports trading. So it is no surprise that Severina is able to map out from memory the distance between Brick Lane and the matching engines of UK-based trading venues to the last hundred metres (many are within 2 kilometres, while NYSE Euronext’s Basildon facility and the Slough data centre used by Chi-X Europe are almost equidistant, east and west of London respectively). But despite recent refurbishment, there are only so many servers that a former brewery in a built-up area of central London can hold. “Space is at a premium,” confirms Severina.
As such, she sees a big future for cloud computing, including for high-frequency trading clients. The basic concept, i.e. that software applications are hosted remotely and accessed on demand via the internet, is hardly a new one, but cloud computing could be used increasingly to allow firms to implement investment strategies that previously might have been considered too short-term to justify implementation.
A stat-arb strategy based on instrument valuations resulting from the Greek debt crisis, for example, might only produce returns for a couple of months. But the comparatively cheap outlay required to rent out access the necessary market data for backtesting purposes and connectivity to the Greek markets, means that a wider range of strategies are becoming viable.
Meanwhile brokers are looking at cloud computing to reduce cost of ownership of technology-intensive services, says Severina. Rather than building all elements of a next-generation algorithmic trading platform, sell-side firms may instead decide to access the necessary elements – exchange connectivity, software applications, market data feeds, latency measurement tools etc – on a cloud computing basis. “This approach allows the investment banks to reduce long-term capital commitments and it also allows greater flexibility from a space perspective,” says Severina.
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