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Direct Edge Taps Data Center to Offer Services

With one connection to Direct Edge, the exchange offers clients connectivity to lit and dark markets, saving telco costs.

It wasn't too long ago that Direct Edge, an operator of electronic stock trading platforms, moved into the Equinix data center facility in Secaucus, New Jersey. Direct Edge was on the brink of launching two new U.S. stock exchanges when it announced plans in January of 2009 to move to the new Equinix facility.

Direct Edge operated both EdgA and EdgX ECNs and the ISE Stock Exchange. Direct Edge migrated to the Equinix facility from its corporate data center locations at 545 Washington Ave., in Jersey City, NJ. When it launched the new stock exchanges, Direct Edge simultaneously retired the incumbent EdgA, EdgX ECNs as well as the ISE Stock Exchange, which it also operated.

But Direct Edge also saw the potential to offer other services to its customers. Today, Direct Edge, the No. 4 largest U.S. stock exchange operator, has begun to use its connectivity within Equnix to link its customers to other markets and data feeds as a way to lower costs for its customers.

In May, Direct Edge said it would use its connectivity to link clients to seven new end points -- which are dark pools including: Barclays Capital LX, Credit Suisse Crossfinder, Getco Execution Services, Goldman Sachs SIGMA X, Knight Link, Knight Match, and Level ATS.

The addition of the seven new dark pools builds upon a previous announcement whereby Direct Edge began offering connectivity to the major lit markets including NYSE, Nasdaq, BATS and National Stock Exchange (NSX).

Last November, Direct Edge launched a product called Connect Edge from the Equinix data center located in Secaucus, New Jersey that helps customers reach other markets faster without incurring their own telecom connections.

"Customers are looking to find a way to lower their infrastructure costs while still having fast access to other markets and other market data," says Kevin Carrai, Direct Edge's Head of Connectivity Services. Carrai previously said that Connect Edge is offering fast access, indicating that circuit latency to some markets is 100 microseconds round-trip.

If a firm is located inside the Equinix facility or outside the facility, and they want to trade on Direct Edge and other markets as well, they would need to establish their own independent circuits to Nasdaq in Cartaret or NYSE in Mahwah, New Jersey, which is costly and requires paying telecom providers to install equipment, notes Carrai.

But with Connect Edge, they could have one connection to Direct Edge to reach these other liquidity pools or market centers, he says. In the November announcement, Direct Edge said that connectivity for data feeds start as low as $500 per month including market data for both A and B streams over separate handoffs. "The pricing is a la carte," Carrai told Advanced Trading and depends on what the customer wants.

As a backup data center facility, Telx also plays a key role in connectivity with the exchange's trading clients, in particular because it operates its own low-latency metro network connecting it to established interconnection facilities in Manhattan, at 111 8th Avenue and 60 Hudson Street

Small and medium size firms can take advantage of this service, rather than pay other telco providers to run their own direct connections, says Carrai. While larger firms will spend their own money to connect to telco providers, they might use Connect Edge as an effective backup solution to get redundancy at a lower price point.

Direct Edge launched its two exchange platforms a year ago (July 2010) after migrating to the Equinix data center. But Direct Edge made a decision not to be in the colocation business. "That's all managed by Equinix," says Carrai. "They work with clients to determine where they will be (located) based on their space and power needs."

At the time, Direct Edge along with market data content and technologies provider Activ Financial were among the first clients to commit to the facility, which also attracted two options markets- ISE and CBOE's C2. The $82 million facility was a second phase of expansion for the Equinix facility in Secaucus, which added 1,

"In terms of connectivity, what we provide is access to the markets and raw market data feeds to the customer," says Carrai. Going forward, the exchange operator is looking at other products, says Carrai. "Looking at ways to reduce costs are really what the future is for many of our firms," he says.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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