Global capital markets trading is being re-architected, led by a cost-conscious mix of hardware, software, data and fewer people, according to research by TABB Group.
Driving this change are regulation-induced automation, particularly in fixed income and interest rate derivatives trading, new governance, risk and compliance (GRC) requirements and disruptive technical innovation.
“Nowhere in the global capital markets ecosystem can this transformation be seen as vividly than in data-centres,” says Paul Rowady, a TABB principal, director of data and analytics (DnA) research and author of “Capital Markets Datacenter Topology: Velvet Rope and the Boneyard,” which details which data centres are on the shortlist of premier capital markets hot spots, what that concentration means for trading businesses and what it signals for the broader data centre business.
Moving past the last decade’s d data centre building boom led by the high-performance computing (HPC) environment, specifically high-frequency trading (HFT), and its excess data centre capacity, Rowady says “only the most optimally located of these purpose-built facilities will be efficient enough to avoid the similar plight of thousands of mothballed jet aircraft parked in the southwestern US desert. There will be winners and losers as more industry functionality is moved into hosting, colocation, managed infrastructure and fully managed services arrangements with lower-cost frameworks.”
Most of the change is occurring in very few data-centres, with a significant portion of global trading activity now found in as little as ten, located in the New York metropolitan area, Chicago, London, Frankfurt, Tokyo and Singapore.
Setting them apart is the presence of liquidity venues and matching engines, what Rowady refers to as a velvet rope. On one side is the most computationally intensive use cases, while the other side is fodder for the boneyard, where a long list of data-centres, particularly in the US, compete for the remaining noncritical-use cases.
Like a trump card, he explains, one unique competitive factor can be claimed by only a very small fraction of data-centres – a “magnet.”
“Depending on proximity to a magnet, a data centre can attract many different participants that serve and support activities around that magnet, specifically one or more magnets in a data centre and the progenitor of an ecosystem. “In capital markets, matching engines are the magnets, a key differentiator in forming an efficient ecosystem,” says Rowady.