Data-Center Strength: Electronic Trading
As a worldwide economic recession pinches IT budgets, data centers are seeing the financial services sector as a pocket of strength.
In particular within finserv, the workhorses are the bank broker-dealers and electronic market makers who are the biggest institutional securities traders. Such firms have been boosting their presences in colocation data centers for years, and with 2020 probably the most electronic, least in-person year in modern history, operators have seen another leg up.
“There is demand from financial services to continuously invest in financial infrastructure, be it for electronic trading, or artificial intelligence workloads, or other workloads,” said Bill Fenick, VP Enterprise at Interxion, a data-center operator and connectivity hub.
“The demand does not stop. You would have thought okay, the trading shops have put enough infrastructure in, but then boom, they say they need more,” Fenick continued. “The largest market makers, at least in London, are saying we need more space, we need more power, we need more capacity.”
The rise of electronic trading is a long-term trend that seemed like it had mostly run out of steam, as adoption rates had decelerated and even plateaued in some asset classes.
But COVID-19 has forced traders around the world to work mostly from home since March. Despite the unexpected, unprecedented situation, markets functioned smoothly even amid volatility, giving remote-work skeptics pause and giving fresh momentum to the financial industry’s electronic trading complex.
Mike Powell, CEO of trading-technology provider Rapid Addition, said 2020 has effectively broken the taboo around working from home, prompting some firms to rethink their cost structures and where to best deploy capital longer-term.
“If I’m a major sell-side bank, sitting on some of the most expensive real estate on the planet in downtown New York or Canary Wharf in London, why am I paying for thousands of staff to be in a crazy expensive building when I’ve just been through six months where we’ve proven we can work remotely?” Powell said. “At some point a light bulb flips on.”
Physical trading floors, heretofore diminished to a largely symbolic role and a small slice of total market volume, have taken a hit in 2020. The London Metal Exchange’s Ring, the last open-outcry trading floor in Europe, has been closed since March, with all activity shifted to the exchange’s electronic system. In the U.S., The New York Stock Exchange’s iconic trading floor and Cboe Global Markets’ Chicago trading floor had two- and three-month shutdowns, respectively; the floors are back up and running, though at limited capacity.
The outlook for a return to in-person trading is unclear, as the virus is a stubborn foe. But through it all, algorithm-driven matching engines, immune from COVID, execute trades. Huge data centers in the City of London and its outskirts; Secaucus, Mahwah and Carteret, New Jersey; and Aurora, Illinois are the backbone of electronic trading, and the facilities are humming, as financial firms continue to shift resources away from internal enterprise data centers.
Ben Stirk, Director at CBRE’s Data Centre Solutions Advisory Group in London, said seven of his 12 banking clients are currently active in managing their data portfolios.
“The financial sector is very active,” Stirk said. “Our core banking clients, who are big global multinational firms, are bolstering their data real estate by right-sizing and consolidating, moving away from ‘on-prem’ and moving into colocation environments.”
For co-location data centers, i.e. off-premises, cloud-hosted facilities, revenue from financial firms increased 1-3% in the first half of 2020, compared with recession-induced declines of up to 10% in sectors such as oil and gas, healthcare, hospitality, and retail. That’s according to Dell’Oro Group, a market analysis and research firm.
Financial services “outperformed that of other enterprise sectors when it comes to colocation infrastructure spending,” said Baron Fung, Research Director at Dell’Oro. “We still see investment going toward building out infrastructure for financial services.”
For a trading firm that reallocates capital spending away from physical and toward digital, aside from the bottom-line savings of reducing office footprint, a company can also generate top-line growth via cloud, data and automation initiatives. This can be especially useful for mid-sized and smaller firms competing against deeper-pocketed rivals.
Deciding whether to pare back physical space comes down to “A, does it improve margin, and B, does it free up some discretionary budget to innovate around technology?” Powell said. “I see infrastructure spend as the way forward. Firms can invest in infrastructure to create different cost dynamics, which is pretty exciting.”
The bank has reduced its total cost of ownership with the new platform.
The transformation will enable clients to scale computing costs and respond more quickly to market changes.
Nearly three quarters of firms’ models were negatively impacted by the pandemic.
Deutsche Börse, Deutsche Bank and Citi were primary investors.
Volante has provided the payments technology for the bank's new platform.