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Available Now: 2010 Trading Beyond the Horizon

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In 2010, financial markets participants will continue to expand their trading activities as liquidity increasingly becomes fragmented, seeking alpha in new markets, best execution in dark pools, arbitrage opportunities across the order book and by implementing high frequency and complex, multi-leg, cross asset class strategies.

The successful operations – whether they be the proprietary desks of traditional broker/dealers, specialist high frequency and algorithmic traders, or quantitative hedge funds –  will leverage a trading infrastructure that combines high performance analytical, algorithmic and order routing platforms with the lowest latency access to multiple, geographically dispersed execution venues.

Multi-market trading – leveraging a fragmented market landscape – introduces new challenges, even for trading firms that have mastered the complexities of low-latency execution using approaches such as co-location and proximity.  Those mechanisms, while still relevant, provide a less complete solution when trading across markets that are geographically dispersed.

New entrants into the market for connectivity and proximity services include organizations that are themselves market participants, such as sell-side firms offering sponsored access and DMA, and liquidity venues, which are now providing global order routing networks, in some cases channelling order flow to their competitors.

Those service providers join traditional players including telcos, hosting companies and value-added extranet vendors, who often bundle trading applications with connectivity.

The bottom line: For multi-market trading, optimization of long-haul and metro communications links, combined with smart use of co-location, is an imperative for achieving the lowest latency, and this requires an understanding of connectivity offerings at a deep, granular level.

This  industry briefing explains the drivers for fragmentation and multi-market trading, the evolving landscape of market access, and explores connectivity approaches to minimize latency.

CFN Services has announced reduced latency between Toronto Financial District and  NY/NJ Financial District. CFN Services, continues their commitment to continually evaluate and improve network latency to all major Global Exchanges. The ability that CFN has to quickly react to the market and the needs of their users provides them a differentiation in the ultra low latency space. CFN  offers turnkey Global Exchange Ultra Low Latency Connectivity, and also provides custom network design and optimization for their users. CFN brings a long history of experience and expertise in the fiber network space and that value is passed along to their customers to help provide them the edge they need to increase their execution success in high frequency trading.

TAMPA, Fla. – December 2, 2009 – Switch and Data (NASDAQ: SDXC), a leading provider of network-neutral data center and Internet exchange services, announced today that CFN Services, a leading ultra low-latency network and custom fiber optic network integrator in the financial industry, has joined Switch and Data’s GeoReach partnership program.  CFN will provide clients with turnkey or custom-designed, low latency interconnections to multiple regional exchanges from Switch and Data’s New York and Toronto Financial EcoCentersSM.  CFN FiberSource(r) Advisor provides professional services to assist financial firms in their regional or global network design, planning, and strategy to enhance their individual electronic trading strategies.

CFN Services, the low-latency leader, provides low-latency global exchange connectivity; offering specific ultra low-latency solutions for the trading areas in Toronto, Chicago, New York/ New Jersey Metro, Washington DC, Sao Paulo, London/London Metro, Frankfurt and Tokyo.   CFN is recognized as one of the only network providers to offer the Low Latency Guarantee along with a Latency Improvement Plan. The key to the integrated solution provided by CFN Services is the ability to identify metro fiber, long haul, and the collocation space to piece together the carrier networks onto one optimal path.   CFN sets itself apart from other transport vendors by offering carrier neutrality, professional services, fully managed services and the ability to design and implement custom fiber networks.

“We are proud to be part of Switch and Data’s new GeoReach program,” said David Conrad, Vice President of Finanical Market Sales, CFN Services. “CFN and Switch and Data can now deliver a complete low-latency solution in the most ideal market locations in New York and Toronto. Under this partnership, we can implement a competitive and comprehensive solution to the most demanding high frequency trading or latency-sensitive infrastructure.”

Switch and Data’s GeoReach partnership program is a select group of providers who have engineered their networks to meet the needs of the high frequency trading community. GeoReach partners have engineered optimum paths from Switch and Data’s EcoCenters to each of the regional liquidity providers that satisfy the requirements of the most latency-sensitive infrastructure. Firms can focus on their core and add each new ATS or Exchange using a low cost, minimal footprint while still maintaining ultra low latency communication across the markets.

“Adding CFN Services to our GeoReach partner program in our New York and Toronto Financial EcoCenters enhances our ability to offer customers ultra-low-latency connectivity to their desired exchanges,” said John Panzica, Vice President of Switch and Data’s Financial Services Practice.  “As more customers utilize trading strategies across the entire market landscape, a selection of optimized paths to the region’s liquidity providers becomes ever more crucial. CFN’s continual optimization creates a compelling story for firms seeking to stay ahead of the curve.”

GeoReach Partners are a critical element of Switch and Data’s Financial EcoCenters which provide mission-critical infrastructure to meet the security, volume and low-latency requirements of the electronic trading community.  These EcoCenters aggregate an ecosystem of the pre and post- trade service provider, buy-side and sell-side communities into Switch and Data sites located in the geographic center of the major liquidity providers in New York and Toronto.

About CFN Services

CFN Services, the Low Latency Leader, is a managed telecom infrastructure services company providing network services for the Enterprise, Public Sector and Carrier Markets, specializing in network design, planning, deployment, and managed services, including: Low Latency Global Exchange Connectivity, Global, Regional and metro network design and cost optimization and mobile backhaul optimization

CFN Services specializes in Data Center optimization ensuring the long haul network enhances the Enterprise distributed network strategy. CFN Services leverages FiberSource®, a global knowledge-based platform that can view all available dark and lit fiber, collocation, and lit buildings; providing the ability to quickly identify and design ultra low latency solutions. Learn how CFN Services can ensure you are Optimizing the Power of your Network www.cfnservices.com

About Switch and Data

Switch and Data is a premier provider of network-neutral data centers that house, power and interconnect the Internet. Leading content companies, enterprises and communications service providers rely on Switch and Data to connect to customers and exchange Internet traffic. Switch and Data has built a reputation for world-class service, delivered across the broadest colocation footprint and richest network of interconnections in North America. Switch and Data operates 34 sites in the U.S. and Canada, provides one of the highest customer satisfaction scores for technical and engineering support in the industry, and is home to PAIX® — the world’s first commercial Internet exchange.

Important information about Switch and Data is routinely posted to the investor relations section of the company’s website www.switchanddata.com. For copies of all Switch and Data press releases and SEC filings, please visit the website. To automatically receive Switch and Data financial news by email, please visit the website and subscribe to Email Alerts. Investors are encouraged to check Switch and Data’s website frequently to access the most up-to-date information.

From Traders Magazine Online News:

Interest in high-frequency trading is at an all-time high, but profit-taking from high-frequency trading strategies focused on low latency is getting tougher.
“The window of opportunity to get into high-frequency trading is almost closed,” said Mark Casey, president of CFN Services, a network provider. He defined high-frequency trading as strategies whose underpinning is low-latency order placement and execution.
“If you’re competing primarily on latency, it’s very, very, very, very difficult,” added Nigel Faulkner, chief technology officer for the equities technology group at Goldman Sachs.
The cost of the technology and infrastucture needed to support high-frequency trading is “tens of millions of dollars” per year, according to Kevin McPartland, a senior analyst at financial services research firm TABB Group. He moderated a panel sponsored by TABB Group and Switch and Data, a data center operator, last Thursday. This article is based on the panel discussion.
Low latency is necessary, McPartland said, to process market data faster than competitors. And high-frequency trading, which encompasses a range of strategies, depends on that data. “It’s like you’re seeing the Wall Street Journal five microseconds into the future,” he said.
High-frequency trading firms must be concerned about latency, but that level of concern should depend on “how much profit they intend to make from every millisecond or microsecond,” Goldman’s Faulkner said. He noted that firms must understand the “value of a micro or milli” for the particular strategy they’re running.
“The infrastucture isn’t the barrier” for firms interested in high-frequency trading, CFN’s Casey told the audience. The barrier is competition. In his view, competing with the most latency-focused firms is a tough, elite game because, at that level, microseconds count. A microsecond is one-millionth of a second, while a millisecond is one-thousandth of a second.
According to a recent TABB report on financial services data centers, the financial services industry spends $1.8 billion for co-location and private facilities to support fast direct access to market centers. Broker-dealers account for half of that sum, or $900 million. Exchanges represent 23 percent, proprietary trading firms 13 percent, asset managers 10 percent and hedge funds 4 percent. That report was published in March, but the figures remain accurate, McPartland said, based on TABB’s ongoing research on data centers and trading, including for an upcoming report on sellside technology focused on U.S. equity infrastructure.
McPartland noted that bulge-bracket firms will often have four or five primary data centers to support their own equities trading and the trading of their clients, and 10 or more co-lo sites in the U.S. All brokers, he said, use co-lo at some level, with many operating in at least two or three co-lo sites.
McPartland added that housing servers within an exchange’s data site is costlier than placing the servers near the facility, such as across the street. The chief features behind a firm’s choice of a data center are cost (which is important to 57 percent of firms), exchange proximity (48 percent), space in the data center to expand (33 percent) and power reliability (29 percent), according to TABB. Additional concerns are service, security, control and network neutrality.
CFN’s Casey said that “proximity trading” has exploded over the last couple of years. Proximity trading refers to strategies that depend on low latency by installing computer servers near a market center’s matching engine.
One of the changes in the marketplace in recent years that has fueled high-frequency trading was regulation. In 2007, the Securities and Exchange Commission’s Regulation NMS went into effect. Reg NMS lay down a set of rules to modernize the markets, but it also made the landscape more fertile for high-frequency trading firms. Casey noted that execution strategies that used to be implemented just on Nasdaq, for instance, have given way to more inter-market trading strategies.
But regulation wasn’t the only significant change. The TABB study found that the “game-changing technology” that spurred the growth of high-frequency trading was bandwidth availability and the relative low cost of buying bandwidth. “That’s what is letting equities volume be eight-to-nine billion shares per day,” McPartland said.
Several panelists pointed out that while speed is vital, not all high-frequency trading depends on extreme low-latency. Nor is all low-latency trading high-frequency, CFN’s Casey said. Still, Goldman’s Faulkner observed that “if it’s high-enough frequency, it must be low latency.” He added that “we increasingly see that the benchmark [for high-frequency trading firms] is low latency.”
As more firms now get into high-frequency trading, their infrastructure development has taken different paths. George Hessler, executive vice president at Lime Brokerage, said he thinks the balance for many firms is tipping toward renting components of the technology and infrastructure, rather than building them from scratch. He added that as consolidation takes place in this part of the trading-services industry, the hardware and software services are improving dramatically. Lime services many high-frequency trading clients.
Goldman’s Faulkner, however, said that it would be hard for a truly latency-sensitive firm to be satisfied with vendor products. For big banks, he added, servicing these firms has also become more complex because their needs are different from the traditional needs of high-volume clients. “We’re having to change the mix of our application developers,” he said.
Firms that are really latency-sensitive must pull out all the stops to account for every microsecond, since that affects their profitability. They must “account for the last 100 microseconds they can’t find,” and be able to figure out if the latency is in the code, switches, applications or elsewhere, Faulkner said.
UBS has a “strong bias” to build rather than rent the various components necessary to support high-frequency-trading firms, according to Josh Schubkegel, executive director for client-facing technology at the big bank. He noted that some clients want to get “close to the metal” and do everything themselves, while others do not.
Schubkegel noted that the focus on serving high-frequency firms has also benefited other clients at some of the big banks. UBS, he said, has leveraged some of the technology platforms developed for high-frequency traders for its direct market access and algorithmic trading business.

Event Name: Switch and Data Presents: Financial Market Structure: Panel Event

Event Date: 11/19/2009 – 11/19/2009

Event Location: Helmsley Hotel, 212 East 42nd Street, NY, NY 10017

Panelist:

Host:
John Panzica, Vice President, Financial Services Practice, Switch and Data

Moderator
Kevin McPartland, Senior Analyst, TABB Group

Panelists
Nigel Faulkner, Managing Director, CTO Equities Trading, Goldman Sachs
George Hessler, Executive Vice President, Lime Brokerage
William Warner Director, Sales Engineering, Reliance Globalcom
Mark Casey, President, CFN Services, Incorporated
Josh Schubkegel, Exective Director, Client Facing Technology, UBS

Event Description: Financial Market Structure: Architectural and Infrastructure Challenges in the New Trading World Many new material changes have firms overhauling their trading infrastructure. How does your overall strategy stack up against the next guy? Join us for a panel discussion about the latest trends and challenges that have firms re-designing for 2010.

Event Website: http://www.switchanddata.com/Financial/Fall-Event

WSTA Resource Guide: CFN Services

CFN Services is a managed infrastructure services company providing network services for the Financial Markets, specializing in network design, planning, deployment, and managed services, for ultra- low latency networking. CFN Services leverages FiberSource®, a global knowledge-based platform that identifies all available dark and lit fiber, collocation, and lit buildings; providing the ability to quickly identify and design optimal ultra-low latency solutions.

Contact Information:
www.cfnservices.com
Judy May
lowlatency@cfnservices.com
703.788.6534
2325 Dulles Corner Blvd 5th Fl
Herndon, VA 20171

From Wall Street Journal Online:

Alternative trading system Bats Europe is planning to challenge London Stock Exchange Group with a new pricing plan next month for U.K. stocks, which it hopes will attract orders from the LSE.

Bats Europe said Tuesday it will invert its U.K. prices next month, meaning the firm will pay clients more for adding liquidity than it charges them to remove liquidity. The pricing tactic has proved successful for the firm in Europe and for its parent Bats Global Markets Inc. in the U.S.

Starting Sept. 1, Bats will pay a rebate of 0.004 percentage point on U.K. trades for adding liquidity and will charge 0.002 percentage point to remove. It won’t charge any fee for customers trading more than an average of £50 million ($82.8 million) a day.

This means Bats Europe would give clients £4 for every £100,000 of business they post on the system, while it will charge a smaller customer £2 — or a larger trading firm nothing — when it takes the other side of the trade.

The move coincides with the LSE’s plan to dump its rebate and fee model — known as “maker taker” — on Sept. 1 and start charging fees on both sides of the transaction.

“Many of our customers are disaffected with the LSE decision to drop the maker taker and we see this as an opportunity to dramatically increase our U.K. market share,” said Paul O’Donnell, chief operating officer of Bats Europe. “We are hoping to boost our share to as much as 10% by the end of September.”

Bats Europe was trading about 4.4% of FTSE 100 equities this week compared with the LSE’s 66%, according to Bats data.

A spokesman for the LSE wasn’t available for comment.

The Bats pricing tactic has helped boost the firm’s trading activity in Europe, where it introduced a similar policy for French, Dutch and Belgian stocks in June, and in the U.S. where inversions in January and September 2007 established the platform in its home market.

The Bats move came just a day after rival exchange Turquoise, which is owned by many of the same investment banks, said it is putting itself up for sale. Turquoise has sent sales prospectuses to 18 possible buyers, including the LSE and Bats Europe.

Turquoise is part of an effort by the banks to gain more control over the cost of buying and selling stocks in Europe’s financial markets. But the exchange has had a hard time making significant inroads since its launch last autumn.

Write to Luke Jeffs at luke.jeffs@dowjones.net

Corrections & Amplifications
Under a new pricing plan, Bats Europe would give traders £4 for every £100,000 of business they send into the exchange’s system. A previous version of this article incorrectly said the rebate would be £4 for every £1,000.

Ensure you have all the facts before you make a choice between Dark and Lit Fiber.

CFN Services discusses the electronic trading space in reference to low latency networking. CFN Services is the leader in the low latency network space. CFN Services has changed the low latency market by introducing: Performance Level SLA, Latency Improvement Plans, Custom Fiber Network Solutions and FiberSource Advisor Professional Services. http://www.tmcnet.com/tmc/videos/default.aspx?vid=1243

The Securities and Exchange Commission may crack down on a controversial practice that has caught on at various U.S. stock market centers, including Nasdaq, Bats Exchange and Direct Edge, that gives some traders privileged access to key market information.

In a letter fired off Friday, Sen. Charles Schumer (D-N.Y.) asked that the SEC ban so-called flash order types, which route stock pricing information for a brief period of time away from the displayed market centers, where all investors can see current orders and prices, and shows it to a limited group of member traders who can then decide whether to fill an order before it is routed out to another market.

The issue has been one of increasing controversy on Wall Street. Flash quotes fly in the face of four-year old rules that were supposed to level the playing field for all investors and make pricing information more accessible. Yet until now the SEC has allowed the three market centers to proceed.

Regulation National Market System required that orders be filled at the best price at any given time regardless of where that price was located. So if Nasdaq did not display the best price for a given stock as the order came in but Bats did, Nasdaq would have to route the order to Bats.

The flash quote programs hold up that process by displaying orders to members for as much as 500 milliseconds–an eternity in electronic trading–before routing out. Some say that gives traders with access to the flash quotes an advantage in that they can fill an order for a lower cost than it may be once it gets routed back out to another market.

Given the explosion in market volumes in the last year, and the fractionalization of the markets caused by Regulation NMS, the major stock trading venues have an incentive to try to fill orders in-house without routing out to rival centers. Direct Edge, an electronic communications network backed by Goldman Sachs ( GS – news – people ), Citadel and Knight Trading, was the first to offer such an order type to its members and recently has used it to great success in siphoning market volume away from NYSE, Bats and Nasdaq.