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Exploring the Strategic Factors Influencing Trading Infrastructure Decisions

by jcp

TNS is a leading provider of mission-critical infrastructure, connectivity and market data services for the Financial Markets community. Ahead of the Euronext relocation to Bergamo next year, we talk to Jeff Mezger, VP of Product Management, Financial Services for TNS, about what to consider for those responsible for electronic trading infrastructure.

Managing remote datacentre space and connectivity is a challenging yet crucial activity for anyone responsible for electronic trading infrastructure. Co-ordinating resources, procuring facilities and hardware, project management, system installation, testing and maintenance all combine to drive up cost and complexity.

Datacentre relocation is difficult and once again front of mind, with Euronext set to migrate its primary datacentre and related colocation services from Basildon in Essex to the Aruba Global datacentre IT3 in Bergamo in Q2 2022.

Trading organisations wanting to co-locate and directly access the Euronext exchange matching engine need to seriously consider if they have the skills, understanding, resources and bandwidth to make a move themselves. For most, the answer will be ‘no’. They will outsource operations to a Managed Hosting, colocation and connectivity service provider. Such providers have already spent several months researching and planning a seamless move to Bergamo.

“Working with an expert provider allows you to focus on your business backed by the reassurance that you will experience uninterrupted, seamless trading from day one of the switch over,” comments Jeff Mezger, VP of Product Management, Financial Services for TNS. “We know the local rules and regulations and have already acquired exchange connections, datacentre space and equipment.”

Low Latency Remains King

Low latency for algorithmic trading is vital. Among many factors that affect latency, hardware location and network connections are key to successfully achieving the lowest latency possible. Trade execution speed is extremely important for profit and loss, and competitive advantage comes from having the best communication links to hardware in the best location.

TNS was the first company to offer ultra-low latency Layer 1 technology inside the datacentre. This enables firms to access execution speeds that are 10 times faster than traditional Layer 3 architectures. It remains the most advanced solution, eradicating the need for multiple switches by using a simple, single hop architecture to deliver connectivity in as little as 5 to 85 nanoseconds and will be available to customers in Bergamo.

“In my experience there are firms that are very latency sensitive and firms that think they are. A Layer 3 standard latency offering can be right for smaller, price sensitive firms. We offer differentiated services to help all traders effortlessly make the move, from small firms requiring a partial rack, to tier 1 banks requiring multiple cages. We have engineers on-site to walk customers through their exact datacentre requirements and set-up including server location and cabling,” continues Mezger.

Outsourcing Pros and Cons

There are clear cost and operational benefits working with a trading support and datacentre specialist, in particular reduced latency and enhanced trade execution. Such companies have shopped amongst the datacentre telco venders to confirm who has the quickest routes in Bergamo. Outsourced providers give access to a suite of services including order routing, market data access and the procuring, installing and managing of trading infrastructure links. Working with a specialist will make the process of moving location less stressful and more efficient, with a single point of contact and 24-hour access to technical expertise.

“Moving datacentres is just the start of the process. Each exchange publishes guidelines that users need to keep on top of. It’s almost a full-time job to understand the options and stay abreast of policies,” adds Mezger. “For example, one exchange specified that you were not allowed to reserve cabinets that were unpowered. However, a recent policy change means that you can now reserve unpowered cabinets. It’s not just a question of doing the research once but staying on top of changes. Those going direct need to consider what happens when something goes wrong. Do they pack up a van and send employees on a road trip or find a remote datacentre team locally? If equipment breaks or needs to be replaced do they buy it locally or ship it and who is going to connect it when it arrives? An outsourced specialist has teams in place and can navigate logistics and regulations.”

Spreading cost is another plus of the outsourced model. Many companies offer the option to lease hardware rather than paying upfront, this can help smaller companies to manage their finances.

Historically there may have been a concern over too much reliance on one outsourcing provider, due to a possible single point of failure both technically and commercially. However, working with a trusted, long established and reputable firm operating a robust network with resilient and redundant connections, along with technical on-the-ground expertise and underpinned by an extremely strong balance sheet mitigates these perceived risks.

Economies of Scale and Data Considerations

Working with a global provider means that clients can directly benefit from economies of scale, making a managed market data solution not only less complex than do-it-yourself models but a more cost-effective approach too. As well as ensuring low latency access to the exchange matching engine it is paramount that the provider will have all data available in Bergamo from day one, helping global trading firms overcome the complexity of obtaining market data from a growing list of sources. As exchange connectivity requirements evolve into a labyrinth of paperwork, pricing, physical connectivity options and market data nuances, partnering helps to cut through the administrative burden and costs. Traders can leverage a single source relationship to obtain the multiple feeds they need direct from the exchanges.

TNS delivers a broad spectrum of market data from a significant number of countries, including the US, Europe and Canada, as well as across Asia, offering raw data from over 100 exchanges, ECNs and ATS. Collectively this provides hundreds of data feeds direct to trading firms from exchanges, such as Nasdaq, NYSE and Cboe in the US; Euronext, the London Stock Exchange, Cboe Europe and SIX Swiss in Europe; and HKEX, JPX and SGX in Asia.

Future Proof

Trading firms need to future proof by working with a company with extensive experience in managing multicast market data and able to provide scalable solutions to accommodate ever-expanding bandwidth requirements. As traders diversify their portfolios their market data needs can place excessive network capacity pressures on their infrastructure, sometimes running into tens of gigabits.

Seek a provider that can easily accommodate these requirements and handle any bursts as a result of high activity periods. This has been seen on many occasions over the last year due to market volatility caused by the coronavirus pandemic.

Act Now

Now is the time for those in charge of electronic trading to engage a specialist that has secured significant infrastructure capacity in Bergamo. Ensure it is engineered to enable trading firms to benefit from the lowest latency commercially available, as well as access low latency network links in the region. With TNS this is delivered as a fully managed Infrastructure-as-a-Service (IaaS) offering and avoids traders having to research, acquire and maintain their own exchange connections, data space and equipment. In the long run it will deliver a lower total cost of ownership, with traders benefitting from cost efficiencies, rack-optimised cabling and design.

About Author:

Jeff Mezger is Vice President of Product Management at TNS with responsibility for its managed services for the financial industry. He oversees product development and strategy for market data, online and datacentre services. The TNS infrastructure brings together over 2,800 financial community endpoints to address the needs of financial market participants worldwide. Traders using the company’s Managed Hosting solution benefit from global point-of-presence footprint and extensive existing on-net connections, including uninterrupted access to more than 60 exchanges with local, physical support around the globe. For more information visit tnsi.com