Wednesday, September 30, 2009
Co-Locate and be Damned
I guess Essex girl jokes are totally out of date these days (what does an Essex girl use for protection during sex? A bus shelter!) but they do spring to mind when looking at today's Financial Times. While all the efforts are taking place in the US to ban flash orders, and regulate high frequency trading and dark pools, NYSE Euronext is building itself a giant co-location facility in Basildon, Essex (that is in England - near London - for my American readers). In a hangar-sized building the exchange is installing racks of computer space for its own trading engines and - next door - banks of space for the HFTs' servers. So, as the US says goodbye to HFTs and their sub-millisecond, fractional profit-snatching ways, Europe welcomes them with open arms. In the US Senator Ted Kaufman is hovering over the SEC to make sure they take a ground-up look at the new market structure. This seems to be working quite effectively. The SEC said to him in a letter that it would dig down and take a hard look at Regulation ATS threshold levels, direct market access, high-frequency trading, and co-location. The FSA has yet to weigh in specifically on co-location and HFT but is adamant that an international approach be taken to policy-making. Otherwise any measures implemented by the UK alone could damage London’s competitiveness. But while the FSA and the SEC are trying to work together more closely, NYSE Euronext is building a hangar for co-location. Europe's new market structure is still too new for regulators to get a handle on it. The SEC had better jump in and advise the FSA before New York and Chicago lose their co-location domination.