December 11, 2013

"These data centers have become the entire ecosystem," says Stowksy. "You have exchange computers, brokerage computers, market data feeds and you now have people bringing in proprietary algos. Their risk analytics and real-time valuations are now in the data centers, and clearing and settlement is now moving in as well. So basically, even if you are not a high frequency trader, if all the connectivity and infrastructure is in one data center that's a big motivation to connect into one data center," say Stowsky.

But Stowksy says that at this point, most of the big brokers are providing some sort of direct market access and providing services on top of that. "Whether they are branding it the way Morgan Stanley has that may not be the case. I think across the board, firms are looking to leverage their infrastructure as a revenue source," says the analyst. In addition, Stowksy says that vendors such as Redline Trading, Pragma Trading, and Direct Strategy, offer similar services in some of the same data centers.

Cutting Costs and Simplifying Complexity

Cost is a consideration for startups that need to get set up in a data center as well as gain connectivity to brokers, exchanges and data feeds.

"The whole space has gotten dramatically more expensive over the last two and a half to three years," says Kaplan, noting that some costs have come down while others have shot up. Servers are faster but they don't necessarily get less expensive since firms need more processing capacity. The power and cooling in the data center space has become more expensive as well, he notes, he says.

Simplifying the complexity of piecing together all the components is another part of the value proposition. Dealing with raw data feeds is an area that can get tricky. And a lot of the services that exchanges offer, such as market data and port fees, have also risen in price, according to various sources in the market.

On the market data side alone, a firm could spend six months to write interfaces to all the different feeds, says Kaplan. "If you want raw feeds, you can get that normalized faster. You don't have to code to numerous exchanges. You basically interface with one API and you are ready to trade, with all of the protections that Morgan Stanley has offered," says Kaplan."It's one provider to work with in getting all your services, racked and cabled, instead of dealing with four different providers across multiple different data centers," says Kaplan. "You have one person to talk to. It helps on the resource side for the clients since they don't have to maintain multiple broker and technical relationships," adds Kaplan.

The MSET offering went live about a year and half ago. Initially Morgan Stanley was solving one or two problems then it began to think about a solution and productizing the whole thing," he says.

The economies of scale also benefit the client. "Clients can leverage Morgan Stanley's relationship with technology providers to receive more advantageous commercial rates, since they are negotiating with Morgan Stanley's leverage," says Kaplan.

Since Morgan Stanley has used these products for years, "We can be confident that we're speaking the same language," says Kaplan. They are mature products. "What a client can build in six months, may not be as comprehensive as what we can offer after having refined our products over many years," adds Kaplan.

As clients trade across multiple exchanges, MSET provides a Risk GUI that is a real-time order tracking system. The tool allows clients to evaluate their order flow on a real time basis and helps them manage risk on all asset classes and all markets, says McGeough. "It could take six months for clients to develop some of these advanced trading tools themselves," says McGeough, noting that these quantitative clients range from two to fifty person shops.

Moreover, firms won't have to deal with each data center or vendor since everything is serviced through Morgan Stanley. "We interface with the exchanges, vendors and providers on the client's behalf instead of them having six different touch points," says Kaplan. "By consolidating the relationships, this simplifies the experience for clients," says Kaplan.

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 ...