Thursday, January 29, 2009

Colocation and the financial sector

Equinix (EQIX) has recently released the Winter 2008 edition of its “eXchange for the Financial Sector” newsletter.

These regular updates are quite interesting, as they offer more insight into this specific service, and often give out details or mention customers that have not been object of a specific Press Release.

As a small reminder, Equinix first introduced its Financial eXchange back in November 2003, with ABN AMRO, the Eurex division of Deutsche Boerse AG, First Traders, Euronext.liffe and Rosenthal Collins Group LLC as some of the first names participating in the service - see this Press Release.

Today, Equinix Financial eXchange extends to IBX centers located in Chicago and New York, in the United States (where new data centers were recently opened also to respond to strong demand from FX participants), Frankfurt, Paris and London in Europe, and Hong Kong in Asia, with Tokyo and other markets due to follow soon (more details on Tokyo later on).

To describe the service in a few, simple words, we might say that Equinix is offering, within a neutral environment (i.e. having available the largest possible mass of network service providers), a secure place where financial customers can put their high performance, low-latency connectivity infrastructure.

This proximity to other financial community participants, within a scalable environment, and the possibility to be “just a cross connect” away for their partners, rather than in distant locations, is, of course, a key selling point for the Company, especially in an industry obsessed by speed achievable in trade execution, often calculated in terms of sub-millisecond performance – and, once more, being “the place” of aggregation for this kind of customers produces a “snow ball” effect, that is one of the positive characteristics of the Equinix business model.

An interesting data sheet for the service is available at this link.

Here are a few articles worth a read, from the newsletter:

Eric Schwartz discusses how organizations are managing their IT solutions in this current economic climate.

It's been a busy time for our Financial eXchange team, with a range of new organizations joining our next generation eco-system and bringing additional capabilities for our members.

Looking back over the course of the last 12 months, it's clear that we have seen some significant developments in the Exchange landscape across Europe, the most significant being MiFiD. Whilst the rate of change is debated, we can say that the post MiFiD environment has created change.

Equinix has created one of the industry's most comprehensive next generation financial eco-systems providing access to traditional exchanges, alternative trading venues, other liquidity pools, market data vendors, trading platforms, clearing and settlement providers, buy-side and sell-side representatives, hedge funds, best-of-breed network providers as well as access to other key geographies.

In today's market conditions, financial institutions and investment management firms are facing significant challenges, and cost cutting efforts have become a top priority.

For the purpose of this article, we will concentrate mainly on a couple of issues mentioned in the newsletter, adding some further comments:

InfoHedge provides an entire range of technology solutions, from custom application development or solving a specific infrastructure problem to becoming a company's virtual IT department, thereby becoming an active partner in supporting the entire business in every respect.

We do not remember InfoHedge previously mentioned in association with the Equinix Financial eXchange – their comment on the service, which seems an expansion into a new location:

>>“Partnering with Equinix in establishing an additional physical presence in the region substantially enhanced our ability to reliably and cost-effectively deliver this type of solution to the Hedge Fund community,” says Alexander Kouperman, founder and CEO of InfoHedge. “This is no longer the market for traditional and more costly models of building an IT infrastructure for small to midsized firms.” <<

On December 11 Equinix issued the following P/R in Europe:

>>Commerzbank Increases Speed and Bandwidth with a Direct Connection to the Services of Gruppe Deutsche Börse at Equinix IBX Data Center in Frankfurt

Foster City, CA/Frankfurt am Main, 11th December 2008 – Commerzbank AG, one of Germany`s leading banks is in a first mover role being the first major bank making use of the premium service solution provided by Gruppe Deutsche Börse with a direct connection to the systems of the stock exchange trading environment in an IBX® data center of Equinix (Germany) GmbH in Frankfurt.

With this measure Commerzbank is underlining its high demand for data quality in the financial trading business. The connection is increasing the bandwidth, therefore Commerzbank is enabled to gain faster access to market data and stock exchange relevant information. This lead is playing an important role in the financial trading business. The high reliability of the transactions stays secured. With its infrastructure Equinix is providing this reliability in the Equinix IBX data centre and is maintaining Commerzbank`s high technical and security relevant requirements for a connection to the services of Gruppe Deutsche Börse. Commerzbank’s business processes are supported by modern high performing IT infrastructures.<<

The Frankfurt data center will also host NYSE Euronext, as mentioned in the newsletter:

>>NYSE Euronext is pleased to announce its choice of Equinix as their new primary point of presence in Frankfurt. NYSE Euronext has chosen the Equinix data centre in Frankfurt as the location for their new POP in Frankfurt. The NYSE Euronext Frankfurt POP will go live in Q1 2009. In the following quarter NYSE Euronext plans to offer access to the Liffe market from the Equinix data centre via a LIFFE CONNECT(R) gateway farm.

Steve Carl (Director of Business Change & Service Quality for NYSE) is adding this comment to the news:

>>“ Our excellent relationship with Equinix has helped us to develop a distribution facility within Frankfurt which we believe will bring great benefit to new and existing customers. The extension of SFTI network into the Equinix data centre will allow us to offer colocation style connectivity and

direct access to our high speed backbone directly to our data centres. We believe that this provides an exciting new connectivity offering for customers who may already have or are considering locating in the Equinix Frankfurt POP.”<<

On January 8, 7ticks also announced an expansion into the Equinix Frankfurt data center:

>>7ticks, the leading provider of high performance trading network solutions, and Equinix, Inc. (Nasdaq: EQIX), a provider of global data center services, announced today that 7ticks has launched a direct, network-neutral connection within the Equinix Frankfurt-North (FR2) International Business Exchange (IBX®) data center between its U.S. based network and the Eurex proximity location in Frankfurt, Germany.

7ticks’ presence at the FR2 center facilitates ultra-low latency services between the Eurex and other international exchanges. Within the center, the Frankfurt presence enhances 7ticks’ existing access to the Eurex VALUES API and Enhanced Broadcast Solution. 7ticks also now offers the new Eurex Enhanced Transaction Solution for lowest latency order routing.

The expansion of 7ticks’ services to Equinix’s FR2 IBX center builds upon the successful partnership that the two companies have in the U.S., where 7ticks is deployed at Equinix’s Chicago centers,” said John Knuff, director of business development for Equinix. "7ticks offers a variety of services that furthers our goal of providing financial market participants at Equinix with access to the best of breed managed services providers."

Some more insight into the activity in Japan, one of the markets where the financial service will be expanded:

"Our team has spent a great deal of time educating our US and European client base about doing business in Japan."

This part of the interview is probably the most interesting:

>>Question – Editorial Board: Major Japanese exchanges have introduced or are about to introduce new trading platforms and the number of technology related companies present in Japan has also been increasing. How do you see the technology environment in Japan evolve from here and what are the benefits of this “technological revolution” to market participants, both in Japan and overseas?

We’ve had a great deal of interest from algorithmic and automated trading firms that would like to do business in Japan.

The potential benefits for all participants would be lower trading costs and accelerated products innovation by exchanges and PTS’s.

Personally, I see an enormous opportunity for Japan to redirect some of the overseas liquidity that has been flowing to more open markets like Singapore and Hong Kong.

In the latest Global Financial Cities Index (GFCI), Tokyo moved ahead of Frankfurt and Chicago to take seventh place. With the technology revolution we are witnessing today and our improved regulatory posture, I think we’ll move even farther up the rankings in a very short period of time.<<

A couple of new partners announced for the FX:


euNetworks is Europe’s foremost provider of high-performance, low-latency networking solutions, specifically designed for the financial

services sector. Our all-fiber optic network connects the major MTFs and data centres throughout Europe, including Equinix Slough, Frankfurt and Paris, or directly to your door. All our services are delivered either on-demand or bespoke for your most exacting requirements.


Detica specialises in helping government and corporate clients collect, manage and analyse information to reveal intelligence, maintain security, manage risk and strengthen resilience.

Detica delivers projects of significant scale across government, financial services and telecoms markets in the UK, US and continental Europe.

Lastly, Equinix announced its participation at the recent FIA Asia Derivatives Conference:

The Company has also attended theFutures Industry Association Japan (FIAJ) Shin nen kai 2009” in January.

Coming back to the USA market, a very interesting new win for Equinix has been announced by Direct Edge, an independent broker-dealer that recently reported 1.1 billion shares handled per day in December 2008.

On January 16, Direct Edge announced its plans to use Equinix as Data Center for its Next-Generation Trading Platform. Here is a part of their P/R:

>>Dear Subscribers, Potential Subscribers, and Friends of Direct Edge,

We are pleased to announce that Direct Edge has signed an agreement to use Equinix’s Secaucus, N.J.-based NY4 data center facility as the primary location for Direct Edge’s next-generation trading platform, which is scheduled for release in Q4 of this year, pending SEC approval of Direct Edge’s two exchange applications.

The current EDGA, EDGX, and ISE Stock Exchange platforms are UNAFFECTED by this data center migration.


Assuming SEC approval of Direct Edge’s exchange applications and completion of all tasks necessary to commence operations of EDGX and EDGA as exchanges at some point in the 4th quarter, the anticipated time-line for implementation of Direct Edge’s next-generation trading platform is as follows:

Late Q2/Early Q3

Commencement of user acceptance testing


Completion of all next-generation platform development

Early Q4

Completion of user acceptance testing


Simultaneous retirement of the ISE Stock Exchange, EDGA and EDGX ECN platforms and launch of next-generation EDGA and EDGX exchange platforms in the Equinix data center.

More detailed information regarding the migration schedule, including details surrounding user acceptance testing, will be made public as it becomes available.

On January 27 Direct Edge also had a teleconferencefor those interested in learning more about Direct Edge’s recently announced agreement to use Equinix’s Secaucus, N.J.-based NY4 data center facility as the primary location for Direct Edge’s next-generation trading platform

During the conference, the Company also discussed the data center migration plan. It is interesting to note that the agreement between Equinix and Direct Edge has an initial 5 year term, almost twice as much the average Equinix contract. This is taken from Securities Industry News:

>>On a Jan. 27 conference call, Steve Bonnano, CTO of the Jersey City, N.J.-based electronic communications network (ECN), explained that Direct Edge’s biggest concern had been finding “a mission-critical infrastructure that basically would support our new exchange platforms.” The company is in the process of filing with the Securities and Exchange Commission for exchange licenses for its EDGA and EDGX platforms.

After looking at other data center providers, Direct Edge selected Equinix because the “Secaucus facility and the Equinix company itself came through as top-notch,” according to Bonnano. Foster City, Calif.-based Equinix and Direct Edge announced a five-year deal Jan. 16. “We felt their presence in the marketplace … and their access to over 300 networks globally made it an easy choice,” he added. “The security of the facility, the reliability of the facility, all shine through.”

Who is competing with Equinix in this specific space?

SAVVIS (SVVS) is probably the biggest competitor. This is a link to their web pages that present their financial offering.

SAVVIS, as well as Equinix, has data centers around the world, and can compete globally. For those interested in knowing more about the hosted exchanges and feeds by SAVVIS, this is a very interesting data sheet.

A different competition also comes from Companies like CRG West, that recently announced a complete refurbishing of a building downtown Chicago, targeting financial Companies interested in being next door to the financial exchanges.

This is part of an article from Data Center Knowledge covering the news:

>>Nestled amid a hub of commodities exchanges in downtown Chicago, the former Western Union building at 427 South LaSalle Street bumps up against an alphabet soup of high stakes financial activity. The Chicago Stock Exchange and Chicago Board Options Exchange (CBOE) are immediately across LaSalle Street, while the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME) frame the north side of the building.

When CRG West bought 427 South LaSalle last May, the building’s focus was primarily telecom. The company has invested $20 million in infrastructure upgrades to make the building more attractive to web hosting and financial companies, which are keen on its extraordinary proximity to the exchanges. One of its new customers could position the site as a key exchange for financial derivatives trading.

It’s not the first time that an aging Chicago landmark has been transformed into a data center hub. A decade ago CRG West’s parent company, The Carlyle Group, worked with Core Location to redevelop 350 East Cermak into the city’s largest data center facility. The former printing plant now has more than 70 tenants, including many key players in the Chicago commodity exchanges.

Tenant at 350 East Cermak also include Equinix, that has expanded its service to the recently built data center in Elk Grove.

In spite of the recent turmoil in the economy, the financial sector seems a very interesting market for data center providers. Time will tell who will become the 800 pound gorilla in this field – but there's little doubt that the game is being played right now.

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