Rewriting the Rules for Financial Trading Infrastructure: Reconstructing the Value Chain

John Knuff

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By John Knuff (Part 4 in an 8-part series)

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New Rules:

  • Clustering creates choices

  • Deconstruct to construct

Investment firms can no longer tolerate long lead times to plumb services into their data centers.

To maximize choice they are clustering in third-party network neutral hubs, where they find both easy access to colocated liquidity and a wealth of ready-to-use, low latency, high volume e-services and technology solutions.

Network neutrality ensures fast access to the broadest possible range of services, a virtual community of literally thousands of firms.

Traders can thus rely on a real-time supply chain of partners that are only a cross-connect away.

To optimize their supply chains algorithmic traders are also deconstructing existing processes into component services that can be outsourced or relocated for greater efficiency, including:

  • Market data services and connectivity
  • Research services and reference data
  • News feeds and related analytics
  • Technical services
  • Smart order routing and execution services
  • Pre- and at-trade risk checks
  • Post-trade performance analysis and reporting
  • Clearing, settlement and margin or collateral operations
  • Back testing and benchmarking services
  • Trade archiving and retrieval services
  • Hosting and other technology services

M2M 2.0 Reconfigures the Digital Supply Chain

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Under M2M 2.0, as technology evolves, trading algorithms become not only faster, but also more complex, addressing multiple markets and asset classes with smarter strategies.

The focus shifts to end-to-end life cycles. This encourages traders to distribute component services across supply chain partners to optimize both time and money.

With over-capacity in slow markets, some Tier 1 banks and exchanges are now attempting to in-source complex trading or technology services to improve their margins.

However, as one hedge fund noted, “This unbundling of broker services has hugely increased competition and allowed us to outsource selectively and thereby retain more margin and increase our market knowledge.”

E-services offer many hidden benefits, including increased agility when firms move into a new region or asset class. Service providers can often just switch on the connectivity, since they will have already completed their due diligence and development for other clients. That is a huge advantage.

However, there are also heavy competitive pressures to perform and rapid penalties for failure, especially in a network neutral data center where the competition is only ever a cross connect away.

Traders can as easily swap out a supplier as engage them, so that raises the bar for everyone.
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Coming Up in Part 5: Architecting for Speed and Agility.

How do investment firms effectively engineer distributed yet collaborating trading algorithms to span the global market?
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About Equinix in the Global Financial Markets

Equinix, Inc. (NASDAQ: EQIX) provides global data center services that ensure the vitality of machine-to-machine e-commerce. Some 400+ buy- and sell-side firms have come to value the agility that our network-rich International Business Exchange™ (IBX®) data centers now provide by operating across 38 markets in 12 countries on five continents, including all of the world’s top financial centers. From New York to London or from São Paulo to Singapore, Platform Equinix contains the world’s most robust and mature financial ecosystem with 99.9999% uptime.
Our community includes 60+ innovative trading platforms like Chi-X, EBS, SIX Swiss Exchange, Deutsche Börse and Bloomberg, 150+ financial e-services providers and 680+ networks. These networks in turn link through to thousands of other firms or markets to form a global ecosystem offering fast scalability and customized service across today’s diverse and uncertain global financial system.

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Learn more at: www.equinix.com/industries/financial-exchange/

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