BATS–Direct Edge to Equalize NY4, NY5 Latency, Post-2015 Equinix Move

In January 2015, BATS will migrate the matching engines for Direct Edge’s EDGA and EDGX platforms currently located in Equinix’s NY4 datacenter in Secaucus onto BATS technology hosted in Equinix NY5—also located in Secaucus, as part of the same datacenter campus as NY4 and Equinix’s NY2 datacenter. Then in the second quarter of next year, BATS will move its BZX, BYX and BATS Options markets from rival datacenter provider CenturyLink Technology Solutions’ (formerly Savvis) Weehawken datacenter to NY5.

To ensure that clients moving into NY5 do not obtain a latency advantage over those with existing infrastructure investments in NY4 and who choose to remain in that facility, BATS will introduce a tiny delay to ensure trading firms in both datacenters receive its market data at the same time.

“We plan to engineer latency so it is equal for anyone connecting from NY4 or NY5,” says BATS global chief information officer Chris Isaacson, adding that the length of cable that would run between the two datacenters within the campus is less than half a mile, so the latency introduced would only amount to single-digit microseconds. “NY4 is a very heavily-utilized datacenter, and many of our customers have infrastructure there. We want to preserve that as much as possible, but we recognize that there is not enough room for everyone to move there.”

As an added incentive for clients to move to NY5, BATS negotiated a discount program with Equinix for firms that co-locate in the datacenter to connect to BATS and Direct Edge. Isaacson declines to specify details of the discount, saying that the exchange will communicate this directly to clients.

“As margins in firms’ transactional business come down—to the benefit of investors—the importance of making sure that fixed costs are low has increased. And telcos and datacenters are a big fixed cost for our customers,” he says. “We canvassed all BATS and Direct Edge members in the latter half of last year leading up to the close of the deal, and asked whether they wanted to be in two datacenters or one. And they said one is better than two, and the vast majority said they wanted to be in Equinix Secaucus…. Customers clearly wanted to reduce their datacenter and telco expenses. If you trade equities in the US, you’re co-located in Mahwah, Carteret, NY4 and Weehawken, so they wanted to be able to reduce that from four to three. And there’s also a big community already in Secaucus—a tremendous ecosystem, including equities, options and foreign exchange markets.”

Despite consolidating in Equinix as its primary datacenter, BATS will indefinitely maintain points of presence in Weehawken and NY4 so clients that don’t want to move their trading infrastructures to the new location can stay in their existing datacenters or migrate on their own timeframe, and will consolidate its backup datacenter in Chicago in Savvis’ CH4 facility, where BATS already had its backup location.

Isaacson says BATS could have pursued a more aggressive schedule, but wanted to give customers at least one year’s notice of a major datacenter move. He says the exchange scheduled the Direct Edge platforms to migrate first because moving within the same campus from NY4 to NY5 is an easier prospect than the “major undertaking” for BATS and its clients of moving from Weehawken.

Between now and the migration dates, BATS will focus on migrating Direct Edge’s markets to BATS technology—which should be easy for clients to adapt to, since the exchanges’ data protocols are very similar, Isaacson says—then will install and build equipment in NY5 to be able to offer testing environments for clients before its markets cut over to the new datacenter.

Stewart Orrell, managing director of global financial services at Equinix, says the vendor will work with BATS and its clients to support the new deployments in an optimal fashion. “BATS coming in really provides more options in Secaucus for clients trading equities. But the real appeal of Secaucus is its cross-asset base. We have major FX and options platforms, and over the past year, we’ve also had success with swap execution facilities,” Orrell says.

BATS has already consolidated its UK datacenters in Equinix’s LD4 and LD3 locations in Slough and Park Royal, following its acquisition of Chi-X Europe, which had an existing presence in LD4, whereas BATS Europe hosted its matching engine in a facility in London’s Docklands area operated by Savvis.