European Exchanges Eye Data Center Riches
The Spanish stock exchange is the latest European bourse to open up its data center to third-party co-location service providers in a bid to attract more high-frequency traders and shore up falling volumes.
Co-location services have grown in popularity as they allow electronic traders the opportunity to place their own computers and wires as close as possible to an exchange’s trading machine, helping to shave microseconds off a trade.
“Data centers are pretty successful and have huge potential to grow quickly,” a market source, based in London, told Markets Media.
After expanding its communication infrastructure and IT systems at its Madrid data center, Bolsas y Mercados Españoles (BME) will, from November, allow allow members to place their automated trading systems just a few meters away from the BME’s cash and derivatives trading engine. The new co-location service will supplement the BME’s existing proximity hosting offering, which was first launched in 2009.
“The new service will improve the access for members of the Spanish stock market, in this way facilitating trading on our equities and derivatives platforms based on an infrastructure that ensures minimum latency and the highest operational capacity while at the same time maintaining a level playing field for all investors in terms of access and the Spanish stock exchange’s current levels of robustness and security,” said Jorge Yzaguirre, director of the equity unit at BME.
BME, which also recently upgraded its trading platform on to a single system and reduced latency tenfold to under one millisecond, has seen increased competition in the Spanish market from pan-European multilateral trading facilities such as Bats Chi-X Europe and Turquoise eat into its previously dominant share of the country’s equities market.
Despite the BME seeing equity trading volumes rise 7.25% to €65.75 billion in April from the previous month, volumes are down 19% on the same period a year earlier. Trading volumes are also down 26% in the first four months of 2012, compared to the same period last year.
Last October, Bats Chi-X Europe embarked upon a pricing promotion to break the previously monopolistic grip held by BME in the Spanish equities market. It appears to be paying off as BME, which had a market share of above 98% at the start of last year, saw its portion decline to 92.7% in March this year, the lowest figure yet recorded, according to data provided by Thomson Reuters. While Bats last month recorded a share of above 5% of the Spanish equities market for the first time, with Turquoise, which is using a similar pricing promotion on Spanish stocks, claiming 0.75%.
Other exchanges across Europe are becoming wise to the idea of attracting and retaining high-frequency trading firms, which now account for the majority of daily trading on equity markets, amid soft equities trading generally.
NYSE Euronext, through its UK data center in Basildon, Essex, which houses all of its European markets including Amsterdam, Lisbon, Paris, Smartpool and the NYSE Liffe derivative markets, and is the size of six-and-a-half football pitches, has recently expanded access to allow more trading firms to co-locate.
“The NYSE Euronext Liquidity Centre [in Basildon] is a landmark facility, which will take electronic trading to new levels of capability allowing firms to access the matching engines with the lowest possible latency,” said Tanuja Randery, chief executive of London-based MarketPrizm, a trading technology company.
CEDX opened on 6 September, offering contracts on Cboe Europe single country and pan-European indices.
The MOU covers certain security-based swap dealers and participants.
Equity underwriting on European exchanges rose 70% in the first half.
The analysis is based on transactions publicly reported by 30 European APAs and venues.
A similar service is available on the BIDS platform in the US equity market.