The infrastructure for low-latency trading in Europe will take another step forward this month as exchange group NYSE Euronext completes its migration to a UK data centre in Basildon, Essex. The exchange group is hopeful that the move will support new trading strategies, but some rivals and market participants have raised concerns over the costs charged by exchanges for hosting trading applications.
On 27 September, NYSE Euronext switched the trading systems of its European cash markets in Lisbon, Amsterdam, Paris and Brussels and its dark pool SmartPool to the new data centre, approximately 30 miles east of the City. The group's multilateral trading facility (MTF), NYSE Arca Europe, migrated on 11 October and will be followed by derivatives exchange NYSE Liffe on 25 October.
Upon completion of the project, NYSE Euronext clients will have aggregated access to the firm's European markets, instead of having to co-locate for the derivatives market in London and for the cash equities markets in Paris, where they were previously located. Firms that co-locate their trading systems and servers at exchange data centres are typically brokers that need low-latency market access to support both their own and client trading activities, as well as high-frequency trading firms that seek optimal control of their own routes to market.
“When we first devised this project three years ago, we realised that the growth of electronic trading and impending fragmentation would make data centres a critical part of our value proposition in the future,” Stanley Young, CEO of NYSE Technologies, the exchange's commercial technology unit, told theTRADEnews.com. “The reduction in costs, combined with infrastructure and technology synergies resulting from running multiple markets from one data centre has seen the number of clients using this service double in comparison with our previous offering.”
Young adds that the ability to trade equities and derivatives from one place with an assured latency for both, reported by NYSE Euronext as 76 microseconds for sending messages within its data centre, will facilitate the growing use of more sophisticated multi-asset class trading strategies.
“We believe that multi-product, multi-leg trading, which is currently in its infancy, is about to take off,” said Young. “The complexities lie when trying to lock the derivatives and cash legs together. If this is done with an unknown latency it can prove ineffective.”
To further boost the revenue accrued from its new data centres, Young says the exchange group is exploring the possibility of hosting other trading venues.
“We have plans for the new year for other trading engines to move their platforms to our data centre in Basildon,” he said. “When we looked at the capacity we'd need, we always had the idea of hosting third-party markets at the back of our mind.”
NYSE Euronext's plans come at the same time as the London Stock Exchange's (LSE) migration of its Turquoise MTF to the same central London hosting centre as the group's UK, Norwegian and Italian cash markets and its EDX derivatives markets. Turquoise's migration to the LSE data centre coincided with the MTF's move to a new trading platform supplied by MillenniumIT, the Sri Lankan IT firm the LSE purchased in 2009.
However, some have claimed that the cost of hosting trading engines is more expensive at NYSE's Basildon facility compared to independent data centre operators, because of the charges relating to the use of NYSE's SFTI network, its single point of low-latency connectivity to multiple markets, built specifically for electronic trading and market data traffic.
“We consider the NYSE data centre as providing a complementary offering to the services we offer,” notes Rutger ter Hoeven, marketing manager at Interxion, which runs a data centre in east London, as well as 11 across Europe. “The difference in cost between exchange-operated data centres and commercially-owned ones is related to the types of service they provide and will depend on the trading strategy and latency sensitivity of individual market participants.”
NYSE Euronext’s Basildon data centre has been tailored specifically for ultra-low-latency connectivity to the group’s markets and only allows its members to route orders using the SFTI network. Interxion supplies proximity hosting to firms that need low-latency links to a range of trading venues – including a connection to the SFTI network. The firm’s clients have over 40 networks to choose from when deciding how to route orders out of the data centre to market destinations.
Andrew Bowley, head of electronic trading product management, Nomura, says that users of co-location are becoming increasingly concerned with the fees charged for these services because of the current trading environment, as well as data centre performance.
“Pricing differences between co-location facilities can be a major factor in determining where market participants choose to put their trading engines, particularly in the current environment of low equity trading volumes,” he said.
But NYSE Technologies' Young asserts that his firm's offering is specifically designed for trading purposes, compared to non-exchange providers that provide other related data services. As such, he argues that the quality of connectivity offered by the Basildon facility exceeds that available elsewhere.
“Our data centre has been designed uniquely for capital markets and equality of access to the matching engines combined with high levels of resiliency and fault tolerance over and above that found in other data centres,” he said. “As far as we are aware, no other data centre offers this capability.”
Bowley adds that NYSE's strategy is in stark contrast to the path taken by other domestic exchanges such as Deutsche Börse and SIX Swiss Exchange and Bolsas y Mercados EspaÃ±oles, which have chosen to locate their data centres locally.
“There is an argument that says by keeping a primary market local, domestic firms will see the platform as being faster relative to the remote MTFs because of the extra latency incurred by physical distance to London,” said Bowley. “NYSE Euronext has gone against that, signaling firstly a consideration of how key London is in terms of trading firms, and secondly confidence in its platforms ability to stand up and compete with the MTFs in the same town.”