Shared Services Generates Buzz

Terry Flanagan

As financial-market activity continues less than robust, market operators and participants remain focused on what they can at least partly control: cost containment.

“The big thing is saving money,” said Shawn Kaplan, general manager of financial services at data-center provider Telx. “Everybody is out there trying to figure out a way to take costs out of their business and provide additional agility into their business.”

Specifically, Kaplan noted the trend of market participants with connectivity into one or more exchanges, seeking to generate revenue by sharing the bandwidth. “We see a lot of firms moving out of their own facilities and coming into ours,” he said. “This is for a couple of reasons — to get better reliability and service, and to reduce costs.”

Kaplan, who is a scheduled panelist at Markets Media’s Summer Trading Network on July 10 in New York, said another benefit of a shared-services model is business agility. “If they acquire a company and need to grow 100% they can do that overnight,” he said. “If they need to shed something and shrink, they can do that. If they need to leave altogether, they can do that as well.”

According to Kaplan, one area of trading that has lost some luster is the highest-speed, shortest-term methodology, whose practitioners compete on milliseconds and seek to locate their hardware as physically close to an exchange’s matching engine as possible.

“The low-latency trading architectures are chilling quite rapidly right now,” he said. “I’m not saying it’s going away — in fact, plenty of people are still getting into it — but it’s chilling for sure.”

“There’s a lot of concern over what regulation could do in that space, and it’s harder to make money in that market across the board right now,” Kaplan said, noting that low-latency trading leaders such as Getco, Tradeworx, and Wolverine now share some services.

“If they thought they could make more money by prop trading, they’d be prop trading,” Kaplan added. “They’re looking at the shared-service model to bring everyone to the level where they were.”

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