Two months ago, we wrote the article “
Colocation and the Financial Industry” to summarize the growing demand for outsourced colocation services, especially from the Electronic Trading Community.
It may now be worth a little follow up, not because the landscape described has really changed, but to update our readers with a few events that have happened in the meantime.
Switch and Data (SDXC), that was previously only mentioned for its opening of a large data center in the New York metro area at the end of 2008, has finally announced a specific service addressing the financial market, and named John Panzica as Vice President to develop and lead its Financial Services Practice.
With this move, the Company becomes a full competitor in the vertical, with a strong potential - a huge new data center of more than 163,000 gross square feet with a large presence of bandwidth providers, being connected to Switch and Data existing 111 8th Avenue and 60 Hudson Street sites in New York, that are servicing already more than 300 networks.
The service, as we can see going thorough Switch and Data P/R, is targeting the same customers as SAVVIS (SVVS) or Equinix's (EQIX) similar offerings:
Switch and Data's Financial Services Practice was developed to help financial services companies design, develop, and deploy infrastructure solutions to meet challenges including:
Speed and Scale - As the need for low-latency market data and trade execution grows, Switch and Data provides an advantage with locations that offer multiple high-performance interconnection choices in close proximity to liquidity providers in New York, Chicago and Toronto. Another challenge is scaling to meet the increase in trade and market data volumes driven by financial volatility and SEC regulation. Switch and Data's high-performance 200 watts per square foot standard supports the order management, market data and matching engine scalability to support current and future growth requirements.
Ecosystem Access - Switch and Data understands that successful electronic trading operations are built on access to the right markets and liquidity providers. Switch and Data sites house hundreds of fiber providers, carriers, managed service providers and financial Extranets. Switch and Data has the ability to interconnect its customers with the ecosystem of pre- and post-trade providers, and the sell-and-buy side communities in North America's leading financial markets.
Reliable and Cost Effective -Switch and Data works with a customer to design and configure the cage or cabinet space and power specifications to support its unique infrastructure needs. This ability to customize helps optimize capital expenditures. In an industry where downtime equals lost revenue, Switch and Data also offers remote technical support to deploy, maintain and troubleshoot customers' equipment. The company's certified processes and procedures for security and alarm monitoring, scheduled infrastructure testing, fast incident response and proactive communication provide maximum resilience and reliability for its customers' operations.
Low-latency trading specialist Wolverine Trading has recently expanded its presence in the New York market with additional space at the CRG West data center at 32 Avenue of the Americas. As Data Center Knowledge reported recently:
The CRG West site at 32 Avenue of the Americas is a 50,000 square foot facility that was once a cafeteria but was transformed into data center space last year.
Wolverine is also an equity investor and anchor tenant of 360 Technology Center Solutions, a new disaster recovery and colocation facility in the Chicago of Lombard, Ill. Wolverine has branch offices in New York, San Francisco, and London.
While different Companies are winning business, the underlining trend seems a strong demand for these kind of services, both for those who are wholesaling large data center space, like Digital Realty Trust (DLR) or those who are addressing the market with specific products, like the Companies we mentioned previously.
The most interesting news, however, come out of an article published by Security Industry News last March. (click on the picture to enlarge)
While the article addresses a lot of Equinix related infos, it is also very interesting to go through some general comments on the vertical (emphasis added):
Behind the façade of a non-descript building in an industrial area of Secaucus, N.J. is a response from Equinix to the electronic trading community's seemingly insatiable demand for collocation services.
Kevin McPartland, senior analyst with Tabb Group in New York, pointed to a shortage of available data center space. "It sounds counterintuitive in the tough climate we're in," he said, but "building your own is pretty expensive, and it's actually more cost-efficient to go to a shared services facility."
"Everyone knows that in order to shave off milliseconds or microseconds the best way is to collocate." (Sang Lee, managing partner of Boston-based Aite Group) added, "If you have good real estate in these financial centers, chances are you are going to get good usage out of them."
Equinix had announced CBOE as a new customer win in its 2Q 2008 conference call (see Seeking Alpha transcripts). We now have more details about this strategic win:
In fact, Equinix is in the process of expanding the Secaucus data center--already the largest in the New York metropolitan area--as it prepares for an influx of cost-sensitive financial firms and trading venue clients such as Direct Edge and, as Securities Industry News has learned, the Chicago Board Options Exchange's forthcoming East Coast platform.
CBOE chief technology officer Curt Schumacher, who said the exchange operator conducted an extensive search before selecting NY4 for its New York venue, credited, in part, its room for expansion and carrier flexibility. "In the past, a lot of exchanges would partner up with one carrier and make all the firms use them," he said. "We like the firms to have that choice." Though CBOE signed the deal last summer, it has not made the agreement public until now.
While the launch date of the new exchange, C2, has yet to be determined--CBOE is in the process of acquiring an exchange license--Schumacher noted that its cage at NY4 has already been outfitted. "All the computers and networking gear is up and running," he said. "We are now laying down all the code and hope to start unit testing in April."
At the end of the article, we are also reminded why outsourcing may be very interesting for financial Companies (and incidentally know about another Equinix win in the NY4 data center):
Forex trading system operator Gain Capital Group, which went live at NY4 in December, previously ran its own data center, according to chief information officer Andrew Haines. "By the very nature of a small, growing business, we became experts in hosting our own technology services," explained Haines. By building out its own facility, Bedminster, N.J.-based Gain had to "deal with providing reliable power, environmentals, Internet circuits and space, as well as all the networking and communications," he said. "It's something we're good at and that has become a core competence for us. However, what we found is that by outsourcing that to Equinix it allows us to focus on higher-value activities."
As a final comment, we believe that demand, in this vertical, for colocation services is still strong, in spite of the recent economic turmoil, and that several different Companies will be able to benefit from the trend. As John Knuff, Equinix's director of global business development, summarized, there won't be a single winner, although having a critical mass of participants and some strategic anchor tenants will certainly allow a few players to play the lion's share:
(Equinix) NY4 does not want to be "everyone's data center," said Knuff. "There's no way we could host every single server and network for the whole financial industry. We don't compete with network providers and don't have our own financial extranet. We go out and attract market data providers and the extranets as well as the carriers."
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