Options has completed the expansion of its Velocity infrastructure-as-a-service (IaaS) trading platform to the NYSE colocation facility in Mahwah, New Jersey. With this development, Options’ clients will not only benefit from exchange colocation to access a wide variety of dark and lit markets across the US, but also from low-latency trading strategies that could improve their competitive advantage.
Ken Barnes, senior vice president of corporate development at Options, says that given the difficulties of operating in today’s markets, this is an important development for both Options and its clients. Starting with a single client, he suggests access at the colocation site will grow quickly over the next few quarters as firms find it increasingly necessary to access new territory while keeping costs manageable.
Types of clients expected to use the colocated service include market making firms, both within and outside typical bank and broker dealer functions, that will see the broad appeal of the access, although Barnes notes that quant shops might also be good candidates for this type of offering. Depending on specific performance requirements, quant firms might find it desirable to either run their entire platform out of one site or spread out and move algorithms to individual distribution centres.
Considering the cost of using the colocation service, Barnes explains that large firms appreciate the agility of such setups as they can be adapted as markets evolve. He says: “When a firm needs to make changes such as expanding into new sites, we can open up a site like this in four to six weeks from getting a contract. Typically, that can’t be done by a bank.”
In terms of smaller firms, Barnes says budget is often a primary motivation for using IaaS as significant capital savings can be made by operating two to five servers at a site rather than investing in dedicated infrastructure.
Looking forward, Barnes highlights ongoing challenges, including fluctuating trading volumes, that are leading firms to re-examine their platforms and consider the viability of colocated services. As a result, he expects service providers will be pushed to focus more on silo support and a stable solution than pure speed. He concludes: “The low hanging fruit has been taken and firms want to work on differentiating the performance of their systems. They are now looking for service providers to up their game in terms of the tools they use, the tools they give to customers and the quality of service they provide.”