Datacentre exchange colocation is on the mind of many key players in the City and beyond at the moment. The idea appeals to a wide group of capital markets participants, and for various reasons.
For example, with Euronext migrating from Basildon in Essex to the Aruba Global datacentre IT3 in Bergamo this year and the London Stock Exchange Group (LSEG) moving trading operations from its current London City location to a new London venue, why do market players consider such a relocation?
Many financial services players seem to opt for a so-called ‘DIY’ approach – versus a managed service model – when it comes to a datacentre move.
A DIY approach is when a company arranges the installation, configuration, connectivity and monitoring of their datacentre equipment within the space they lease from the exchange in-house, said Alastair Watson, who is the managing director for Europe, the Middle East and Africa at Transaction Network Services.
In an exclusive interview with City A.M. today, Watson explained there are several things to consider when going DIY, including how much space and power is required, network connections, bandwidth, latency, market data feeds and whether there is a need to connect to additional third-party data or services.
Connectivity, market data, power and space costs can quickly add up to tens of thousands of pounds per month. On top of these fees are additional capital costs for equipment and staffing for support and maintenance.
There is a lot of talk in the City about ‘colocation’, particularly after LSE’s announcement. Why do firms feel that need?
Colocation is when a firm locates its computer equipment in a datacentre managed by a third party. Financial markets, exchanges and trading venues make space available within their datacentres for financial institutions and managed services providers to colocate. Originally firms colocated to benefit from ultra-low latency trading, but now drivers have expanded to include achieving deterministic latency, access to accurately time-stamped market data and connectivity to other venues and cloud services.
“The main advantage in colocating at a trading venue’s datacentre is gaining direct access and proximity to the venue’s matching engine, trading network and data to reduce latency.”Alastair Watson
Latency is the time taken for a piece of data on a network to travel from one endpoint to another and is measured in fractions of a second. Reducing latency is crucial for traders as it means they can be more responsive to rapidly changing market conditions.
So what are the factors to consider when moving a datacentre from one jurisdiction to another?
Working with an expert provider that knows the local rules and regulations is paramount when a datacentre moves jurisdiction. Outsourced providers give access to a suite of services from day one of trading in a new location including order routing, market data and the procurement, installation and management of trading infrastructure. They can make the process of moving location less stressful and more efficient, with a single point of contact and 24-hour access to both technical and exchange specialist expertise.
What is the impact of exchange or venue migration to cloud on the colocation market and end user’s requirements?
The evolution of the exchange datacentre has seen exchanges partnering with cloud providers to migrate their offerings to cloud. Nasdaq has announced a multi-year partnership with AWS, and similarly the CME with Google announced a 10-year partnership to move their exchange to the cloud.
“With that in mind where does this leave colocation? Basically, in the same place – market participants will still benefit from colocation, perhaps more so than before.”Alastair Watson
Nasdaq has confirmed it will utilise AWS Outposts. Nasdaq plans to incorporate AWS Outposts directly into its core network to deliver ultra-low-latency edge compute capabilities from its primary datacentre in Carteret, New Jersey.
What are datacentres doing to address sustainability?
Datacentre power efficiency is measured using a metric called Power Usage Effectiveness (PUE), with a lower PUE indicating greater energy efficiency. Datacentres are in a unique position to positively impact sustainability, as they deliver highly efficient infrastructure that can be backed by renewable energy and integrate new systems such as heat waste recovery. By using a combination of the latest hardware that emits less heat, optimising airflow inside the site, as well as moving to clean and renewable energy sources, large multi-tenant datacentres can dramatically improve efficiency and sustainability.