Asia-Pacific Financial Information Conference Panel: Asia Co-Location Centers Must Open Up

Panelists at last week’s conference called for ways to make co-location more accessible to make cross-market trading more practical in the region.
Exchanges are too restrictive over who can access the centers, and do not provide sufficient latency transparency to allow firms to tune their trading algorithms, said Del Abdullah, head of electronic trading technology at Daiwa Securities.

Demand for connections between venues in Japan is growing, “but if you are in the Tokyo Stock Exchange’s co-lo center, you can’t connect to other venues, even if they are in the same building—and that hinders business, because you can’t perform best execution or take advantage of different tick sizes on different exchanges,” said Miguel Ortega, market data engineer at Deutsche Securities Japan, who added that regulation may be required to force datacenter operators to open themselves to competing venues in the interests of best execution and good business.

“Exchanges being in a public datacenter where they could cross-connect would make more economic sense,” said Chris Lee, global head of direct access and electronic brokerage at ABN Amro Clearing, who moderated the panel. “But I don’t think regulation will drive exchanges into co-locations—though maybe exchange mergers would, or maybe if an exchange finds itself with empty racks in a big co-lo center that it invested a lot of money in.”

However, Jonathan Leung, vice president of market development and head of hosting services at Hong Kong Exchanges and Clearing, said HKEx’s policy for its own co-lo center will be more relaxed than other restrictive exchange agreements, and that in future, exchange datacenters will be required to provide more value to clients.

“From a technical standpoint, the point at which the speed of light becomes the limitation will probably be what creates a more level playing field,” Ortega said. “So then it comes down to who has better strategies and who makes best use of market conditions, rather than it just being a latency arms race.”