As the arms race for ultralow-latency trading moves overseas, exchanges are connecting their U.S. liquidity centers to other markets to expand their global reach and pull in customers.
In December, Nasdaq OMX established what it says is the lowest latency route from its colocation facility in Carteret, N.J., to Brazil's stock and futures exchange, BM&F Bovespa. The new trade route, provided by Perseus Telecom, boasts round-trip latency of just 107 milliseconds, nearly 2 milliseconds faster than the next fastest route from the New York metro area to Brazil, according to Nasdaq OMX.
"This strengthens our colocation services," says Stacie Swanstrom, head of access services at Nasdaq OMX, who notes that Brazil is the fastest growing emerging market. "We're always working on our connectivity strategy. Primarily we're working on where our customers want to go."
According to Swanstrom, customers will colocate "first and foremost in Carteret," where many of the fastest routes to and from various international liquidity hubs come together. "That makes our data center more attractive as a liquidity hub," she says. "You can reroute to other data centers without having to have colocation at other data centers, too. It really depends on the customers and how latency-sensitive they are." A U.S. broker-dealer that wants to have the fastest connection to Brazil, Swanstrom explains, could colocate in Nasdaq OMX's data center in Carteret and from there, pick up connections that can be rerouted to competitors' data centers, such as the NYSE's facility in Mahwah.
Meanwhile, NYSE Euronext is building out modified liquidity centers in Chicago, Tokyo and Toronto, where it leases space to clients alongside other venues in those markets. "If you want to trade options and equities via Arca in Mahwah while trading another piece of the derivatives business on the Liffe," says Jerry Capaci, VP, SFTI and colocation services in the Americas, at NYSE Technologies, "they may colocate that piece of their business next to the matching engine in Chicago."
[For more on the efforts by NYSE Euronext, Nasdaq and CME Group to build out liquidity centers that offer a full range of electronic trading services, see Ivy Schmerken's related feature, "Liquidity Centers Are Exchanges' New Revenue Centers."]