Author: Craig Spital, Partner
There are several elements in building a financial trading network that are heavily debated within the financial community. Should a trading participant build out a dedicated trading environment and “go direct” with the data centers, exchanges, hardware and telco procurement and the respective in-house personnel supporting the environment on a 24x7 basis? Or should the firm consider outsourcing some or all of these functions to a Managed Service Provider (MSP)?
Below we highlight the 4 reasons outsourcing to an MSP should always be the first choice.
#1 Lower Cost
Building a financial trading network (even in one region, let alone a global scale) costs millions of dollars in CapEx and OpEx. By utilizing an MSP, a trading firm’s cost of entry is radically reduced from both an upfront and on-going basis. Examples of this include exchange connectivity costs. Through an MSP model, we’ve typically calculated trading firms purchasing their required connectivity at 1/10th the price of going direct. Furthermore, we see economies of scale for participants whom only require a single or handful of servers to host. Why would one want the burden of a costly prime real estate co-location whole cabinet, when they could alternatively reach out to an MSP and rent a fractionalized portion of that same cabinet? The same applies here for WAN backbone links, internet, timing services, top of rack switches (rent by the port), and much more.
Additionally, if a participant chooses to build out their own environment, it would require the support of both network and infrastructure engineers on an ongoing basis. By leveraging an MSP, the participant would require significantly less in-house employees to support this mission critical network, and with certain top tier MSP’s, may have immediate access to top level data center, network and systems engineers - leveraging a global ‘follow the sun model’.
#2 Focus on Your Core Business
Procuring, building and maintaining a financial trading network comes with a significant amount of vendor management responsibilities, including the data centers, exchanges, telcos, and VARs. This can create full time Procurement and Legal jobs for the participant’s organization. Leveraging an MSP can effectively empower the participant to have “one neck to choke”. With this, comes far less moving parts, one single point of contact and standardization to facilitate easier management.
Not being responsible for supporting and maintaining the infrastructure and network will ultimately enable the participant to focus on their core business. Alleviating the noise of network support and maintenance allows the firm an ability to focus on building, testing, implementing and deploying their trading strategies.
#3. Time to Market
Establishing a financial trading network can take several months, if not years. Once the base environment is set up, situations will arise that require new co-location venues that are not a part of the initial build. These types of requirements would initiate a new build with a substantial cost requirement, and testing component. This process could take many months before being ready for production, as one must factor in cabinet and hardware procurement, customs delays, circuit provisioning and exchange agreements. Utilizing an MSP, the participant is able to immediately send their servers out to the live data center, already on-net with the MSP, and be in production within several days.
It is often feared, that by leveraging an MSP the performance of trading is degraded due to the additional hops in their network. This cannot be doubted, and is fairly ubiquitous within the industry. After all, if an MSP can take an exchange hand-off and distribute it to multiple switches underneath the original exchange hand-off device, and then multiple device are deployed underneath this layer, it enables the MSP to further profit off a sunk cost. In addition to a latency hit, this paradigm also introduces additional points of failure which may significantly impact a participant’s uptime.
With all of this in mind, perhaps the technology at a typical MSP should be heavily scrutinized, when a participant is exploring outsourcing. Questions such as the number of hops between the exchange handoff to the MSP, and the participant’s top of rack switch undoubtedly need to be asked. Latency expectations for market data and order execution should also come into question.
At NetXpress, we are fully transparent and always willing to open up the hood for our customers. We have taken advantage of the latest switch technologies available, today, and built our network brand new from the ground up. Through a combination of new technologies and proprietary FPGA code, that differentiates our offering from any other MSP in business today, we can confidently assure you that our client deployments offer a solitary single hop via our NetXpress Ultra product. Finally, for transparency of our architecture and respective latencies - compared with a traditional MSP - please see the accompanying NetXpress Ultra vs. Traditional MSP depiction.
For further information please contact us.