U.S. financial firms are investing an average of $1.8 billion annually on data center space, power and cooling, according to new research from TABB Group. That investment is transforming the nature of Wall Street trading, according to TABB, which says that more than 66 percent of the current US equity trading volume is driven by fewer than 1 percent of the firms deploying ultra low-latency strategies that place their servers within feet of an electronic exchange in data centers.
"These centers house the heart of nearly every financial services business," says Kevin McPartland, senior analyst and TABB and author of the new research report. "From high-speed trading to derivatives pricing, the soaring need for compute power has made data center space the virtual replacement of Wall Street."
McPartland writes that although data centers will remain the realm of engineers, the front office has grown acutely aware of their importance, along rising power bills required to run cutting-edge hardware. Eighty two percent of industry insiders interviewed ranked power as their most pressing concern, surpassing connectivity and cost.
Optimizing data center infrastructure for low-latency algorithmic trading is no simple matter, TABB says. These high-tech trading engines must fetch and analyze market data with the least latency possible, and the hardware powering the platform must be perfectly suited for the task. "Except for a dozen or so firms at the top of the low-latency trading world, very few have a correctly optimized infrastructure to benefit from such close proximity to an execution venue's matching engine," says McPartland.
That's one of the factors likely to drive the development of a shared services model that will move the low-latency industry into cloud computing, allowing financial firms can rent CPU cycles and memory-on-demand.
The 21-page report, Financial Services Data Centers: Power, Proximity and Profit, is based on interviews with front-office staff and technologists at trading firms and solution providers.