The Exchange Hosting service, which was announced in May, allows investment firms to put their servers in the stock exchange's datacentre.
Messages will no longer have to travel over communications networks to get to the stock exchange. It takes about one millisecond for every 200km travelled on fibre.
"We are targeting this at the top 10 of our clients and major hedge funds that trade using algorithms where a micro-second can make a lot of difference," said Wendy Morgan, head of real-time data at the London Stock Exchange.
Servers that generate the trading algorithms will be connected directly to the Tradelect trading platform. The quicker a trade can be complete the more attractive it is to investors because they are more likely to get the price they want.
Next month, the London Stock Exchange will cut the time taken to complete a trade on Tradelect from six milliseconds to three milliseconds as the company completes an upgrade of Tradelect.
The exchange will initially roll out enough cabinets in its datacentre to meet current demand, and this will be followed by a further release of cabinets in February 2009. There will be additional services such as helping clients build servers and install applications, and dedicated communications lines to improve traffic flow.
The London Stock Exchange has also cut the fees it charges investment companies for trading. This is a way of increasing the exchange's competitiveness amid increased competition and attracting the companies that do high-volume algorithmic trading.
Clara Furse, chief executive at the London Stock Exchange, said, "The new shape of this tariff structure will capture the important growth arising from the major shift towards statistical arbitrage and algorithmic trading in UK equity markets."
Since the introduction of the Markets in Financial Instruments Directive (MiFID) last November, which liberalised the share trading sector by removing a rule that said deals had to be done on local exchanges, new players have arrived boasting high speeds.
Turquoise is one example. The company was set up by investment banks to take on the London Stock Exchange and other traditional European exchanges.