The huge rise in automated “low latency” trading has boosted business for data center providers that can offer high-speed access to process financial data and trades, especially Savvis (SVVS) and Equinix (EQIX). But the growth of low latency trading has also been good for stock exchanges that offer colocation services.
In the latest sign of this trend, The London Stock Exchange this week announced the launch of Exchange Hosting, a service providing algorithmic trading firms with the fastest access to the exchange’s trading and information systems, known as TradElect and Infolect. Trading firms can colocate their servers within the exchange’s data centre, providing low latency access to the TradElect matching engine and Infolect market data.
“Exchange Hosting extends the variety of connectivity options available to customers by providing the ultimate solution in terms of low-latency access to our markets,” said David Lester, Chief Information Officer at the London Stock Exchange. “This new service underlines our commitment to reducing latency at each stage of the trading cycle and facilitating the structural shifts in trading patterns that are driving growth on our markets. The service will allow customers to host their algorithmic engines next to our core TradElect execution engine and aid further liquidity generation and market efficiency.”
On a 100 megabit connection, Exchange Hosting could reduce roundtrip trade execution and market data transmission times by 1.5 milliseconds, the exchange said. That seems like a small difference, but Wall Street firms using computerized algorithmic trading measure success in milliseconds and microseconds. A microsecond is one-millionth of a second.
The Exchange Hosting service will be introduced in two phases, with an initial release of cabinets this month and additional capacity in February 2009 after the exchange upgrades the TradElect system to improve capacity and latency.