Opening Cross: ‘Location, Location, Location’ Is Only Half the Battle

Whether you’re a fan of the FiDi, a sucker for the suburbs, hot for hipster ’hoods, or wild about wide open spaces, the “location, location, location” rule is as applicable as ever. In fact, in the capital markets, location is even more applicable than ever, since where you set up shop—or, to be more specific, where you host your latency-sensitive market data capture, analysis and trading systems—can have a big impact on how competitive you can be in the marketplace.

Basically, just as a London fashionista would ideally live steps from Sloane Square, or a country music wannabe must slum it in Nashville, being close to the things that matter is important. And for financial markets, that means trading firms want to be as close to the markets they trade on as possible, to minimize the length of latency-inducing cable or wavelength between them, so they (in theory) receive data before their rivals and can trade faster, enabling them to act on opportunities before others can respond. It also means that trading venues themselves want to make it easy for those trading firms to connect, and want to be as close to them as possible—even being close to rival trading venues, if it makes it easier for them to access a community of liquidity providers and clients.

Hence, following its merger and ensuing technology integration with Direct Edge, BATS Global Markets will move to Equinix’s NY5 datacenter—part of a campus of facilities on the same site operated by the hosting and datacenter provider that already hosts a range of equities, options, foreign exchange marketplaces, as well as a glut of the trading firms that already connect to those marketplaces.

“It’s hard to over-state the importance [of datacenter location],” says BATS global chief information officer Chris Isaacson. “These are critical decisions that are taken following many months in negotiations and discussions with customers. These decisions are long term, and you have to live with them for a long time—and your customers have to, too.”

Just like the home-worker mantra of “Work is something I do, not a place I go,” location becomes a matter of efficiency and accessibility. “Wall Street is just a street now—everything that used to go on there now takes place in datacenters in New Jersey,” says Stewart Orrell, managing director of global financial services at Equinix.

Of course, the more you can consolidate in central locations, the less that today’s “oceanographer traders” need to lug around a suitcase full of analysis and trading tools, as described by IPC’s Bart Bartolozzi in an Open Platform in this issue. But location isn’t just about getting the fastest access to a market: sometimes it’s simply about getting any kind of access to that market. For example, Fidessa is planning to connect to additional exchange markets across the Asia-Pacific region, and will initially “hub” the data through its new co-location presence at the Singapore Exchange, but will also consider setting up dedicated points of presence or even co-location sites in individual market centers based on client demand—even if, as Fidessa’s Asia-Pac business development head David Jenkins notes, some of those venues are not “fast markets” and don’t require the same level of low-latency access.

But location is only half of the equation. Any trading opportunity is about being in the right place at the right time. So once you’ve chosen your ideal spot, you still need to be able to spot and react to those opportunities as they arise. Hence the importance of Big Data analytics to trading algorithms, or smart fundamental and technical analysis to human traders, such as the new features unveiled by Recognia that allow users to customize the data they receive from its Technical Insight platform based on technical and fundamental criteria.

“Location, location, location” rings true as ever, but won’t do anything on its own, and depends on being accompanied by other factors that enable you to leverage that location. So when you locate, make sure you’ve also got leverage.