Wall Street Spends $1.8 Billion A Year on Data Centers, Tabb Group Says
Proximity attracts a hefty premium from ultra-low-latency trading firms; 82% of firms say power is their overriding concern.
By Penny Crosman
April 01, 2009
With financial markets firms investing an average of $1.8 billion annually on data center space, power and cooling — sell-side firms and execution venues alone spend nearly 75% of that total — power, location, connectivity, flexibility and security are critical elements in the creation and selection of financial data centers. According to research from Tabb Group in a new report published today, "Financial Services Data Centers: Power, Proximity and Profit," 66% of the current US equity trading volume is driven by fewer than 1% of the firms deploying ultra low latency strategies that physically require being located within feet of an execution venue matching engine.
The report is based on interviews with front-office staff and technologists at bulge bracket broker-dealers, proprietary trading firms, execution venues and IT solution providers. "Once hidden only in basements of downtown Manhattan buildings and staffed with people in ripped jeans and sneakers, today's data centers contain some of the world's most bleeding-edge technology, run by some of the industry's best and brightest," says Kevin McPartland, senior analyst and TABB and author of the IT research report. "These centers house the heart of nearly every financial services business. From high-speed trading to derivatives pricing, the soaring need for compute power has made data center space the virtual replacement of Wall Street."
Although data centers will remain the realm of engineers, the front office has grown acutely aware of their importance, forced to recognize the impact of the world's changing politics and economics, specifically how cutting-edge hardware requires considerable electricity to run. Multiply that need, says McPartland, by tens of thousands of servers used in any given data center, which explains why 82% of those interviewed ranked power as their most pressing concern, surpassing connectivity and cost.
He cites an example using a single blade server that consumes about 100 watts per hour, same as an incandescent light bulb. With 30 blades per rack and an estimated 100 racks in a single data center cage, 300,000 watts per hour would be used, approximately the same amount of power used by 3,000 suburban homes in the U.S., excluding additional energy to heat and cool the servers. The 300,000 watts must then be multiplied by 24 hours, multiplied by seven days, multiplied by 365 days — all for one cage of one firm's data center. Reinforcing the point, he says, "Financial services data centers are the largest users of power in the State of New Jersey."
The TABB report covers data center business models, third-party product and service solutions, power density, carrier density, security and proximity. For this last point, he explains that the trading engine needs to be optimized, market data must by gathered with the least latency possible and the hardware this runs on must be perfectly suited for the task. "Except for a dozen or so firms at the top of the low-latency trading world, very few have a correctly optimized infrastructure to benefit from such close proximity to an execution venue's matching engine."
In the not-so-distant future, the shared services facility business model will move beyond common power, heating and cooling into the area of cloud computing where firms can rent CPU cycles and memory-on-demand.
