Algo Group has become the latest trading technology company to take advantage of the opening of the London Stock Exchange’s data centres to third-party service providers.
Late last year the LSE agreed to open its data centre, where daily trading effectively takes place, to multiple non-trading firms for the first time. The move enabled vendors of services to high-frequency and other proprietary traders, such as Algo, to sell to trading firms from within the data centre.
Fixnetix was the first to enter the LSE’s data centre under the new arrangement, which had previously been exclusive with Quant House, a rival to Fixnetix and others.
Co-location allows trading firms to place their computer servers near an exchange’s matching engine to cut the time it takes for messages to be sent to and from the matching engine – shaving microseconds off trading times.
Opening up its data centre will allow the LSE to attract more high-frequency and algorithmic traders, which account for the majority of daily trading on equity markets. Exchanges around the world are following suit, realising they can also earn revenue from renting out “racks” of computer server space within the data centre.
However the move is also illustrating how the market, and established exchanges’ business models, are being reshaped by faster and cheaper computing power.
US-based Algo Group, which launched in the UK a year ago, is building its own super-fast matching engine, and has its own high-speed fibreoptic network linking the US with Europe.
“High-frequency, high-speed algo trading has been a feature of stock markets for some years and is here to stay. No exchange can see its growth impeded by traditional architecture,” said Hirander Misra, chief executive of Algo Technologies, the group’s trading technology business.
The LSE operated co-location services at a data centre since 2009 but it was limited to one firm, Quant House. Last year it dropped its exclusive arrangement and allowed any company to go into the data centre.
Other co-location services providers, such as Fixnetix, have also expressed an interest in placing their services within data centres.