Data Rigged? Dealing with High-Frequency Trading: 3 Things to Look For in Data Center if You'™re in the Financial Industry (or are Just Curious)

April 07, 2014

"When you open Michael Lewis' newest blockbuster book, Flash Boys, you be focused on a quote from The Wire:

""A man got to have a code“ (The Wire's Omar Little)

Ambiguous statement, possibly? But with the advent of high-frequency trading as Wall Street uses algorithms, advanced coding and any and every computer technique available to get around the human opposition (after all, not even the most seasoned floor trader is faster than your average desktop computer) a ""man"" has to have a code - or a team of coders wouldn't hurt.

The Floor of the NYSE
The book, a warning and retrospective (featuring the usual suspects ""Good Guys versus Bad Guys"" - Virtu (the good) and on ""the bad"" - the ""dark pool"" - or stock exchange where no one can see what trades and orders are taking place - the IEX ((""the investor's exchange))) and featuring the ""Flash Crash"" of 2010, asserts that high-frequency trading (HFT) is chiefly responsible for the turbulent market of today - that and the thousands of black boxes carrying out trades at speeds ""100 times faster than you can blink an eye.""* It's a bit of a flaw assertion, but it does raise the red flag: when milliseconds count what can the average company or person do about it? What if your Data Center is far, far away in Virginia, far away from the maddening crowds, and from the dark fiber backbone lying next door? What can you do?

Rigged or not, here they are: three things to look for in a Data Center if you're in the Financial Industry:

1) LOCATION, LOCATION, LOCATION:

According to an expert in Telecom, Ronan Ryan (part of panel put together by Brad Katsuyama of the Royal Bank of Canada (RBC) - the group that largely served as the panel of experts used for Lewis' book) - most successful HFTs occur along the fastest cable routes that lead from the financial district to lower Manhattan and the various stock exchanges in New Jersey. Ryan literally plotted out the map of the backbone of the Financial District. Ryan's finding made him exclaim: ""Hey are you guys aware of where these data centers are located? Of course you're arriving there at different time intervals."" And the different times they arrived left them a nanosecond-late and a few HFTs short.

So, what can be done? Tapping into the already-in-place infrastructure in New York is expensive, but it might just be worth it: if you're a hedge-fund manager and a fund your running is worth $9 billion, and just because you're not on the backbone, according to Katsuyama's group, you could be costing the fund $300 million in trades per year. 365 Main and vXchnge run the closest data centers to the financial district, both companies offer award-winning uptime and 365/7 days a week service.

2) Low Latency

The trend towards low latency is all over the data center world, and it is particularly visible in the financial sector. Firms pay higher-than-average premiums to build data center in New York and now in Northern New Jersey, just to be closer to the main stock exchanges. The industry has also worked to pioneer lower-latency technologies, such as laser transmission between the exchanges, in a race to close the gap between trade times and the speed of light, the Wall Street Journal recently reported.

Firms have come under scrutiny lately as some of the exchanges own servers reside in the data center where the financial firms' data is stored. New York's attorney general Eric T. Schneiderman recently launched an investigation into the practice, going so far as to call it ""Insider Trading 2.0."" - which begs the question, can a computer commit insider trading?

However, Latency is still one of the highest priorities when choosing a data center, regardless of what industry you're in or what industry your data is in. It's a simple reality of physics - the closer you are - the quicker your data is going to get to where it is supposed to go, and when you're talking about trading - latency is up there with location. For more on Low Latency Click Here.

3) Think Modular: Be Ready to Move, Quickly and Possibly Often

We've posted about this difference between the once-in-a-career data center move that most companies will have to endure. Click here for: ""How Not to Screw Up Your Data Center Move"" for five tips on how to be ready for the move.

Whether the firm is looking for lower latency or a coveted spot opens up along the financial backbone, more and more financial firms are finding in a necessity to move datacenters. Modular data centers can be a quick and easier alternative to the traditional data center move.

Although a Modular Data Center is not a data center on wheels it's the closest thing to it. And it for good reason why financial companies find the modular data center so appealing: everything is literally in one unit, and can be moved with minimal effort.

4) BONUS: Read Lewis' Latest Blockbuster ""Flash Boys""
Interior copy of Michael Lewis' Flash Boys
And form your own opinion on the legality of the High-Frequency Trade, the ""dark pools / markets"" and the hidden trades that are commonplace in Wall Street today.

Keep in mind: only an estimated 28% of all trades happen on the stock exchange floor. The traditional floor traders seem to be a dying breed in this bulls' market, and although we are seeing HFTs wax and wane in popularity, the little black boxes will probably continue to dominate the financial landscape, and so will the data center.

For more information on all things go to datacenters.com or call one of our data center specialists at (877) 406-2248.

*Source: 60 Minutes"



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    "When you open Michael Lewis' newest blockbuster book, Flash Boys, you be focused on a quote from The Wire: ""A man got to have a code“ (The Wire's Omar Little) Ambiguous statement, possibly? But with the advent of high-frequency trading as Wall Street uses algorithms, advanced coding and any and ...