In a drive to target the growing business of high-frequency trading, the CME (Chicago Mercantile Exchange) is planning to open a new data center in the Chicago suburbs in early 2012. Heading the development of the unit will be Craig Mohan, recently hired from Citadel Investment Group.
The new data center will give exchange members the ability to co-locate their servers alongside the exchange’s own machines, thus minimizing the latency derived from sending and receiving price quotes and order messages. This is an important factor for high-frequency traders, who typically send thousands of orders per second from their “black box” trading computers to the exchange’s matching engines. To trade profitably, high frequency traders need to reduce latency to an absolute minimum.
By developing the new data center, the CME is following closely in the footsteps of other exchanges, who either already offer co-location facilities or have plans to do so. Just recently, NYSE Euronext announced it will be opening new data centers in New Jersey and in the UK later in 2010.
The practices of high frequency trading and co-location is already under investigation by the US regulators. Earlier this year, the SEC published a concept release on the structure of the US equities markets, and they have already received much feedback from various quarters on the potentially unfair advantages these practices offer to their proponents.
CME has countered by stating that the new facility will be available to all its customers, not just a select few. The exchange is also working the public relations angle by promising the new data center will be environmentally friendly.
It is not known how much the CME is investing in its new facility, although it is estimated that the data center units being developed by NYSE Euronext will cost in the region of $500 million.
