Key factors to consider when reviewing financial markets data centres
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What should clients consider when selecting a data centre to access the financial markets?
Adam Bradley, Australian Securities Exchange (ASX): Selecting the right data centre provider is a key strategic decision for all businesses, and for those needing to access the financial markets it’s even more critical to find the right partner. Housing your most valuable data and trading stack within a third‑party facility means you need to undergo stringent processes to ensure your provider has the security, support, flexibility, power, connectivity and reliability required to meet your goals. Not all data centres are created equal, and it’s important to understand their differences to determine which provider best meets your long-term needs.
When examining the options available to a firm in accessing the financial markets, what are the key issues they look to address?
Adam Bradley: Clients are looking to reduce cost, complexity and risk. They want to be able to connect to the financial markets easily through a single partner, to help deliver operational efficiencies and facilitate new business opportunities. As a starting point in reducing costs, most clients undertake a cost‑benefit analysis that examines the different options available to achieve their goals. Usually these are:
- co-locating a trading engine in an exchange and trading venue co-location facility;
- locating a trading engine in a third-party data centre that is not co-located with the exchange or trading venue;
- locating the trading engine in the firm’s existing in-house data centre; and
- locating the trading engine in the public cloud.
In the simplest analysis, there is a cost associated with each—rack space, power, hardware, smart hands, usage charges, and so on—that must be weighed up against the benefits of each option.
We find that clients want to access multiple trading counterparties, execution venues and service providers quickly and efficiently. We acutely understand that need, and can connect to members of the ecosystem within days.
When these counterparties are fragmented in multiple locations, there is a high cost associated with connectivity—running fiber or leased lines to connect to each of them, for example. This approach introduces longer lead times, which can impact a client’s ability to capitalize on new revenue opportunities in the shortest lead time. Finally, connectivity on the street can be prone to cuts as a result of construction work, which then introduces operational risks and can even negatively impact an organization’s brand.
Initially, some clients begin their analyses with quite a simple comparison: looking at the space and power costs of each data centre provider. This approach is the quickest, but is also incomplete as it doesn’t take into account the clients’ total cost of ownership (TCO). For the client to connect to the exchange, an alternative trading venue, a data vendor or a software vendor, this will require multiple forms of connectivity. Running connectivity into multiple locations will generate considerable costs as well as complexity. When all of the aforementioned counterparties already have a presence in a single location, it is far more cost-effective for the client to co‑locate. This not only reduces the client’s TCO, but also introduces business agility and a more flexible approach to accessing connectivity at short notice.
What other areas must clients consider when evaluating data centres?
Adam Bradley: Although, on the surface, many data centre providers can appear very similar, there are some clear differences that need to be assessed. Operational risks such as potentially customer-impacting maintenance are important to review. The more generic data centre providers that service a wide variety of industries tend to carry this out at times suited to the facility operator, often outside of peak retail hours. However, if you’re in the financial markets, carrying out maintenance at times that coincide with the most critical periods of the trading day can introduce unnecessary risk. It is essential for any facility operator aligned with the financial markets ecosystem to recognize and understand that even a few short minutes of downtime during these critical moments of the day can be catastrophic for clients.
ASX is seriously focused on uptime and reliability as it operates its primary markets and post‑trade platforms from the Australian Liquidity Centre (ALC). The slightest interruption in service could have potentially serious impacts on clients. Therefore, ASX is intensely focused on maintenance and risk reduction. In every decision, it’s essential to consider the potential downstream impact on clients and their customers. Often, generic data centre operators cannot put as much scrutiny on these areas—put simply, their client bases are so large and varied that it is not practical or economical.
Likewise with security, ASX has extremely high standards due to the nature of its own operations and those of its financial market clients. Many generic data centres have thousands of clients daily, which creates much more risk of security incidents occurring. The ALC reduces this risk. ASX’s clients do not want to access their equipment unless absolutely necessary, so foot traffic is kept to a minimum. Sometimes it comes down to simple design features such as installing a guard house external to the facility perimeter, as ASX has. This introduces another layer of protection to screen individuals and deliveries before they even enter the ground to approach the security desk. In other cases it can come down to avoiding the introduction of far more significant risks that could potentially impact clients, such as building a data centre adjacent to a major airport, within a known flood zone or in the most densely populated area of a city. Depending on the geography, there may be unavoidable physical limitations. These types of factors all need to be taken into consideration when choosing where to locate mission-critical market technology.
Firms in the financial markets often require a lot of power density for their racks. If your requirements are power hungry can the kit be racked affordably or do you end up with a lot of empty space?
Adam Bradley: ASX provides clients with a range of power options, price points, and low-, medium- and high-density offerings. This way, clients can be more efficient with their space. Power security is also a hugely important consideration-especially in situations such as a major incident affecting the national electricity network. ASX is a critical component of the Australian economy, and keeping the markets operational is a priority. As ASX operates the primary trading and post-trade platforms for Australia from the ALC and our secondary data centre, every client co-located within the data centre will stay up and running with us too.
What about connectivity between your clients and their co-located kits?
Adam Bradley: Connectivity is a crucial part of the offering for any data centre such as the ALC. You can create significant operational efficiencies and maximize the scale of your business by accessing multiple counterparties from one location. ASX has found that clients can reduce their TCO by running cross-connects to counterparties such as data vendors, independent software vendors and other trading venues, rather than leasing fiber circuits.
This also creates a more flexible ecosystem for buy-side firms wanting to connect to multiple sell-side firms. Rather than being hosted by one sell‑side firm, buy-side firms are increasingly taking their own space in the ALC and adding connectivity to multiple sell-side firms via a cross‑connect, which can be performed in a matter of hours.
Providers of order and execution management systems or market data want to connect with existing and new clients with minimal friction. Having their target market all under one roof within the ALC greatly reduces the lead times and barriers to start doing business. Based in Australia, ASX is uniquely placed to understand and appreciate what drives each of the firms residing within or considering the ALC. Only firms directly within—or that provide a specific service to—the financial markets are allowed to reside within the ALC. ASX designed a business model and built a data centre following the Uptime Institute’s Tier III principles. ASX is determined not to compete in the world of generic data centre services, but to follow its day-one ethos, which was to build a home for the ecosystem that makes up the Australian financial markets: a place where ASX could help facilitate the interconnection between a group of diverse members in the most secure and efficient manner. This is very much aligned with the trust bestowed upon us to operate the critical financial markets infrastructure for Australia.
What type and number of data providers and liquidity venues should clients in the financial markets looking at co-location be able to access as a minimum?
Adam Bradley: As a starting point, there is value in connecting to just one of these counterparties within the ALC because of the simplicity, low risk and cost efficiencies involved. The moment you connect to more than one party, the initial cost of space and power is split across each connectivity requirement. Ultimately, this becomes more about connectivity requirements than space and power.
However, if a counterparty is not within the ALC, ASX has a strategically deployed network of points of presence within specific local generic data centres, providing direct low-latency connectivity over multiple diverse dark fiber paths for firms that require access to these facilities. Whether it is to connect to an alternative trading venue, reach a public cloud provider or access a subsea landing station, being within the ALC significantly reduces complexity for clients because all of this can be achieved through the provision of a cross-connect delivering an end-to-end service.
More than 120 client sites across the country are connected to the ALC by ASX’s managed dark fiber network, ASX Net. These sites have the ability to connect with each other, helping to reduce the need for third-party telecoms services. ASX can quickly and cost-effectively connect parties across the country—and even internationally—via ASX Net Global, where it has points of presence in Europe, Asia-Pacific and the US.
It is important for clients to maximize opportunities to connect with exchanges, software vendors, liquidity venues, brokers, and buy‑ and sell‑side firms. All of these operating within Australia are accessible through the ALC, ASX Net or both.
The introduction of the revised Markets in Financial Instruments Directive has created a great deal of interest in timestamping services. How is ASX managing that regulatory requirement for its customers?
Adam Bradley: Within the ALC, we have two separate time synchronization services: a global positioning system (GPS) time feed and a (precision time protocol) (PTP). The GPS time feed allows ALC customers to synchronize their computer system clocks to the GPS reference time. The ASX PTP time feed provides ALC customers access to the same time signal used to set the clocks on the ASX and ASX 24 trading platforms.
When ASX opened the ALC in February 2012, it had already taken the decision to ensure that latency would be equal for all firms connecting to its trading platforms. In practical terms, this means that, no matter where a firm’s rack is located on the co-location floor in relation to the ASX trading platforms, its cross-connect will always be exactly the same length as those of other firms. Whether the firm is executing orders or receiving market data, when it’s in the ALC, it is on equal footing for accessing ASX’s markets, as well as for connecting with other firms. This design feature increased the overall cost of construction as a result of greater cabling requirements and a complex system of management, but because ASX had a responsibility to provide fair and equal access, it was an absolute necessity. Where an execution venue is located in a generic data centre, it will be almost impossible to ensure this equality from a latency perspective is provided to all that connect.
As security is becoming increasingly important, what measures are clients looking for when choosing a co-location provider?
Adam Bradley: Security for all firms—not just those in the financial markets—is paramount, and a facility needs to offer an environment with 24/7 physical and remote measures in place. Support and monitoring needs to be available to ensure ASX’s clients’ businesses are protected, so it has installed an operations center directly on the co-location floor to facilitate this. ASX takes security extremely seriously. Staff or contractors representing a client who wishes to access the ALC must be preapproved and be induction-certified by ASX. On a client’s first visit to the ALC, ASX takes a high-resolution photograph of their iris for biometric identification purposes, enabling access and verifying their identity in future. ASX also provides induction certification training to all clients relating to data centre layout, evacuation points, explanations of warning alerts, and so on.
The ALC is essentially a securely guarded, private-gated ecosystem, only accessible by those within the financial markets. All residents are acutely aware of matters relating to confidentiality, compliance, regulation and risk reduction—just as ASX is, as a market operator. Firms residing at the ALC perform background checks and vetting on all of their people—as does ASX. ASX also records audit trails and performs regular third-party reviews.
ASX operates an online customer portal where clients maintain their own user lists and request physical access. There are more than 120 cameras on site, which include thermal imaging and proximity sensors that use laser beams to detect objects on the perimeter of the facility.
Security is key, but it is also crucial that access is not cumbersome. When a client comes to the ALC, it could be to address an issue with their production system, so the process must not only be secure, but also very smooth to prevent unnecessary delays. We have structured our client access on client feedback, underpinned by our robust security measures.
As previously mentioned, the ALC houses ASX’s own mission-critical systems. Therefore, our security standards are extremely high, and our clients are protected to the same standard in this robust and secure environment.
ABOUT ADAM BRADLEY
Adam Bradley, global head of sales for connectivity services at Australian Securities Exchange (ASX), has more than 15 years’ experience advising the financial markets on connectivity and infrastructure solutions. He partners with clients to help them expand into new markets, extract value through new innovations and reduce cost and complexity through ASX’s connectivity services.
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