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Fixed Income Trading: New venues

A simple question came up recently in a conversation – how many new Fixed Income trading venues are there?  I could not think of anywhere th...

Thursday, 19 February 2015

What is a FIX network, Part three...

This post will cover co-location.  So why is co-location being covered within the context of a series of articles on FIX networks?
This is a follow-up to part one and part two.  Part one looked at equity, fixed income and foreign exchange connectivity.  Part two looked at the low-latency world.
 
Simply put, the world has moved on since the days when buy-sides and sell-sides would run servers in their own datacentres.  The rise of the likes of Equinix, CenturyLink and many others has changed the dynamics of the market entirely.  In simple terms, why bother with a FIX network when you can get a cross-connect from your racks in a datacentre to the racks that belong to your counterparty?
When co-location is mentioned it's typically on the basis of a fast-money firm wanting to be close to a specific market matching engine. Works for a single market strategy, not so good when trading on multiple markets.  At the moment though, the world of co-location is split into a number of use-cases:
  • Foreign exchange trading hubs that offer co-location to their client base to be close to the matching engine
  • Equity, futures and options exchanges that offer co-location to their client base to be close to the matching engine
Indeed, this blog has suggested before "Exchanges: What next?" that one way for Exchanges to remain relevant is to create an environment where buy-sides locate their oms/ems systems and therefore bring along the sell-side.
 
Look at this a different way:
 
My re-wording of that is "The network is the value proposition of the modern financial services industry".  Whichever regulated, trusted firm can place itself at the heart of the network will generate stable, recurrent revenues and, if well managed, be highly profitable.
 

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