Proliferation of Co-location

Terry Flanagan

CME Group will become the latest exchange to provide co-location services to traders.

As exchanges increasingly move outside their core business of matching trades and toward diversification, the introduction of co-location services has become an increasingly common route.

CME Group has announced that its co-location services, which will include hosting, connectivity and support services, will go live on Jan. 29, 2012.

“We offer a number of ways for our customers around the world to connect to CME Globex as we strive to provide them with the highest reliability and lowest latency possible,” said Bryan Durkin, chief operating officer of CME Group. “Our new CME Co-Location Services provide fair and equal access by offering all customers equal pricing, the same terms and conditions, as well as equal lengths of fiber between customer cabinets and the CME Globex platform or connections to carriers. To date, we have seen a higher than expected customer demand for our new service.”

Exchanges worldwide are looking to increase the speed and lower the latency of their trading platforms, which most directly benefits high frequency traders. Co-location facilities are located as close to their machine engine as possible, giving trading firms, including HFT firms, nearly instant execution times. HFT has grown to about 75 percent of trading volume in the U.S., according to industry estimates.

The service is expected to become a lucrative source of additional revenue for exchange operators, as they capitalize on the quest for speed sought by active, high-volume traders. CME Group has previously said that it expects to generate between $30 million and $40 million from co-location services when they launch next year.

The data center, located in the Chicago suburbs, has been purpose built for co-location use. It will provide equidistant cross connections to put all users on equal ground.

NTT America, a unit of NTT Communications, will be providing its Arcstar service for the co-location center, which will allow users low latency access to Asian markets.

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