This week, NYSE Euronext announced that they are opening their US Liquidity datacenter in Mahwah, New Jersey to non-member companies for the first time. That means any third party can buy space and co-locate their servers at the NYSE to level the playing field (from a latency perspective) with the big boys on Wall Street.
Is NYSE doing this in response to non-member demand for such access, or less-than-expected demand among member firms? Pete Harris at A-Team speculates:
The question, though, is how many customers will pay a premium for lower latency access. In the days of the “low-latency arms race” (just a couple of years ago), the “spend what it takes to reduce latency” mentality would have assured a huge take up for such services. But now with an increased focus on costs and ROI, firms will likely carefully weigh the advantages of spending more for faster access. Those engaged in arbitrage and market making are likely to be takers, since latency is extremely important to their strategies, whereas those providing DMA services and routing client orders, will probably think hard about such an investment.
In our business, we have seen the same. In 2008, the typical new prospect wanted to talk microseconds, whereas today they want to talk dollars and cents. Projects driven by latency are now targeting lower cost, higher reliability or simpler operations — and acceptable latency gets addressed somewhere down the list. This is a natural byproduct of the overall volume reduction of high-frequency trading, which has been the primary driver for ultra-low-latency solutions.
Where HFT data volumes go next depends on the overall global economy and whether or not there is follow through on much-talked-about regulatory changes as a result of HFT’s perceived role in recent market volatility and the infamous flash crash. Either way, it’s a safe bet that general market uncertainty and regulatory changes already on the books (like Dodd Frank) will keep capital markets firms focused on cost reductions for at least the next few years.