Opening Cross: Follow the Money—to Abry, Aurora or Asia

Max Bowie, editor, Inside Market Data

Last week’s acquisition of datacenter and infrastructure provider Xand Corp. by private equity firm Abry Partners is the latest in a string of deals that reflect the importance of bricks-and-mortar facilities—and the inter-market connections that take place within their walls—to the modern market data industry and financial markets. As the world becomes increasingly globalized and interconnected, the facilitators of that connectivity are proving to be increasingly valuable.

In April, we saw CenturyLink acquire Savvis for $2.5 billion, and more recently co-location and hosting center provider Telx was sold to Abry and Berkshire Partners for an undisclosed sum. Not only does this demonstrate that private equity money—notably thin on the ground in recent years—is returning to the market, albeit perhaps with new outlooks on return horizons, but also that they believe there is value to be found in infrastructure, where vendors have been spending fortunes on low-latency connectivity between market centers and to hot new markets, such as Latin America.

As trading congeals around massive exchange-owned co-location centers—such as NYSE Euronext’s datacenters in Mahwah, NJ and Basildon in the UK, or CME Group’s new facility in Aurora, Il., some 40 miles outside Chicago’s city center—these intermediaries will play a key role in providing access between the fragmented liquidity pools.

CME’s new co-lo facility, which the exchange last week announced will go live on Sunday, Jan. 29, is a veritable hub of activity for infrastructure providers, with AboveNet, AT&T, Hudson Fiber Network, Level 3 Communications, NTT Communications, Sidera Networks and Verizon approved as connectivity providers to the site in August, and over a dozen more—including Anova Technologies, CFN Services, Colt Telecom, KVH and Reliance Globalcom—awaiting approval, of which officials hope a further three to five will be ready by the time the center goes live, after rehearsal tests in mid-November, December and January.

But all the cable distances within the center—from the carrier room or the Globex trading engine to each client—are equidistant to eliminate any “location advantage” within the center, says Craig Mohan, managing director of co-location services at CME.

Now, providers who have had success in low-latency co-location and infrastructure markets in North America and Europe are looking for new sources of revenue, and are turning their attention to the Asia-Pacific region, which is still largely dominated by a few local players and domestic exchange groups, such as the Australian Securities Exchange, which is opening its new datacenter to trading firms this week.

However, as new venues such as Chi-X Australia enter the market and threaten to fragment trading in individual markets and the region as a whole, demand for more co-location and proximity hosting centers—to provide intermediate points between multiple venues to support cross-market strategies—is likely to increase.

But it’s not just the infrastructure space that is gaining interest in Asia: Agency broker and trading technology provider ITG is expanding its research presence with coverage of Chinese companies, where it believes there is an opportunity to create a differentiated research offering where little information is currently available (see story, page 7), while Dow Jones Newswires is adding economic event information from Southeast Asia to the event calendar in its DJ FX Trader application (see story, page 9).

We’ll be able to check out these trends first-hand when we travel to Hong Kong for our Asia-Pacific Financial Information Conference on Nov. 7-9, hosted in partnership with industry association FISD, which held its World Financial Information Conference in San Francisco last week. You can find Vicki Chan’s roundup of themes from WFIC elsewhere in this issue, and interviews from the conference in the media center of our website.

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