The London Stock Exchange is offering to host investment firms'
trading systems
on its datacentre for
quicker trading.
It is better for investors to
complete trades as close to real time as possible because they
can buy shares at the price they want. In high volumes, even a
small price fluctuation can make a substantial difference.
Despite the
technology investments of
European stock exchanges, an investment firm can be slowed down
connecting to the exchange and sending information.
Proximity to the exchange reduces latency. Every 200km reduction
in fibre cuts one millisecond.
According to a survey carried out by
COLT Telecom, 90% of IT professionals in the finance sector
expect to invest in cutting the time to complete a trade. Many are
now relocating some of their trading infrastructure nearer
exchanges.
Ian Jack, head of financial services strategy at COLT, said it
takes 12.7 milliseconds to send a message from London to Frankfurt
over fibre. "The exchanges are reducing the time to complete trades
but the time to send messages to the exchange has not changed for
years. Now trades are completed so quickly this is a large
proportion of the total."
He said there is a trend for investment firms to locate their IT
infrastructure closer to exchanges. "We are seeing a lot of
investment companies using third parties to host parts of their
infrastructure nearer the exchanges they use."
He said this could include order management systems, data feed
handlers and risk systems.
Stock exchanges have a competitive advantage if they can
complete trades quicker. The London Stock Exchange will be able to
complete a trade from start to finish in
three milliseconds by the end of October.
David Lester, CIO at the exchange, said there is a team of
developers working 24 hours a day to reduce the time taken to
complete trades. He said the firm knows how to reduce it below one
millisecond but has yet to devise business case to justify the
investment.