Colt's Blog

In 2012, as algorithmic trading continues to evolve, it is my view that we will start to witness more firms using their systems to trade equities not only from the US and Europe, but also from the Middle Eastern, Latin America and Asian markets.

The latest announcement that Colt’s sister company KVH will be expanding its low-latency network to Sydney, adding a new data and co-location centre, is indicative of the expansion of trading, and the rise in transaction volumes, across the Asia – Pacific region. New entrants, such as the Multilateral Trading Facilities (MTFs), are also bringing market liquidity and this in turn is drawing in more trading participants to the Asian markets.

However, it’s not all just about Asia; the Mexican Exchange will also be announcing the launch of a new internal trading engine which has a reported throughput of more than 200,000 messages per second. Like KVH, the trading engine will be ultra low latency, executing trades in round-trips of just 100 microseconds - an improvement of over 25 milliseconds on the Mexican Exchange’s legacy trading system.

As European markets continue to come under the regulatory spotlight, emerging markets remain in a perfect position to take advantage of regulatory arbitrage, a practice that enables organisations to capitalise on loopholes in regulatory systems. A surge of regulatory arbitrage is already benefitting lightly regulated destinations such as China and Russia.

Regulated investment firms in the likes of Brazil and India will continue to develop smart order routing capabilities as they gear up for a surge in algorithmic trading. This will be driven in part by the organisations that have managed to slip through the Volcker Rule system, brought in post the sub-prime mortgage collapse to restrict the amount of money banks can invest in hedge and private equity funds in order to safeguard the system from risky market speculation. Therefore, by turning their attentions towards more sophisticated smart order routing technologies, investment firms in emerging markets can avoid this regulatory risk by using algorithms to get the best results without moving the market, enabling them to access hidden liquidity.

However, it is not all straight forward for those looking to get aggressive around HFT in emerging markets. The procedures for regulatory approval around algorithmic trades are highly complex in certain markets. Take the National Stock Exchange (NSE) of India.  An organisation trading at high-speed in India must prove to the NSE that they have certain risk precautions in place. This is in addition to fully demonstrating the full nature of the trade to the exchange.

It is a question of when, not if , emerging markets will fully embrace the benefits of algorithmic trading in 2012. In every emerging market, a growing proportion of trading is conducted at high-speed and nothing except a blanket ban will prevent the practice from being adopted elsewhere. While there are a few barriers to overcome for the likes of India, when it comes to algorithmic trading, the genie is well and truly out of the bottle. If the model continues to work in Europe, why should emerging markets not adopt the same approach as the search for more liquidity gathers pace?

Colt and Sea Fibre Networks pave the way for lowest latency route between Dublin and London

It’s great to be involved in an exciting project to build the lowest latency route between Dublin and London utilising the new CeltixConnect undersea cable announced by Sea Fibre Networks on Tuesday.  The new cable provides the shortest network connection between Ireland and the UK and will double the data capacity between these key online media markets.

We will integrate this new route into our 35,000km pan-European network and data centre infrastructure over the coming weeks, enabling our customers to connect at very high speeds around Europe and beyond.

This investment also demonstrates Colt’s desire for innovation and development.  We are determined to be seen as one of the key low latency providers in Europe and this relationship with Sea Fibre Networks and the use of their new CeltixConnect cable undoubtedly shows our commitment to this.

We handed over ownership of the modular data centre to Verne Global on Friday 24th November – well within our four-month delivery timescale. We’re very proud of this achievement as we had a number of weather related issues to overcome along the way to make sure the data centre was ready in time for the first customers to move in…

After watching the ‘Beau Trader,’ a 177m long cargo ship, set sail for Iceland carrying the 500m2 modular data centre, we packed our gloves in preparation for some very long, cold days and set off to Iceland ourselves to begin the installation process.

We were initially due to start work on the site on Monday 17th October. However, as you’d expect with this type of extreme deployment, it wasn’t all plain sailing for us and poor weather conditions intervened on more than one occasion.

Our first hurdle came when fog in London prevented the bulk of the team from flying out to meet the data centre when it arrived in Iceland. The weather became a more difficult for us as we were faced with high winds approaching Keflavik. While our planning was detailed, it was fluid, so we reworked the timeline for off loading the ship to get over this obstacle.

Some of our team flew out early so we were able get the modules off the ship, ahead of schedule, and moved to a secure warehouse where they were stored while we waited for better weather and the arrival of the rest of the installation team.

As more modules arrive, the data centre hall begins to fill up and assembly begins

This particular weather front made it difficult to stick to the stringent timelines we had for completing this project. The high winds prevented us from being able to use the cranes to load the data centre modules onto trucks to get them to the former NATO airbase where Verne Global’s data centre campus is based.

Taking the decision to delay the installation was a difficult one to make but as with all projects like these, safety is paramount. Without a doubt, it would have been more detrimental to the project if something had happened to one of the modules if we’d tried to unload under the wrong conditions.

In this instance our patience paid off. When the weather cleared, it was all hands on deck and the work began in earnest. A true team effort meant that we were able to keep to the schedule.

On arrival at the Verne Global site, following 1,000 miles by sea and two road journeys, the immaculate condition of the modules reflected the robustness of the modular design and the skills of the shipping/transport teams.

Following the arrival on site, the assembly of the data centre, the commissioning and the testing progressed well and went ahead as planned. In fact, even taking the initial delay into account, we were still able to complete the Integrated Systems testing ahead of schedule which ended with our handover to Verne Global – on time – well within the four month deadline.

All-in-all, it was a very successful project which even the weather could not halt. This success can be attributed to the incredible camaraderie between the UK installation team and the Icelandic stevedores (dockworkers) as they worked tirelessly to deliver the dual-sourced 100 percent renewably powered data centre.

On reflection, the three key takeaways from this project are:

1. The remarkable cooperation and friendliness of the Icelandic people. From the taxi driver, the locals who came to stand at the fence and watch the work, the staff at the local KFC when we ordered 48 meals in one go!

2. The camaraderie of the entire team and how they got together every evening to eat and drink together after intensive 12 hour shifts.

3. Iceland wasn’t nearly as cold as we thought. ICEland, in fact, didn’t seem an apt name. The warm welcome we received would melt any ice in an instant!

According to a recent study by the SMB Group small businesses that work together are more likely to succeed, in fact collaboration could make a real difference to your whole business performance. The study states that small businesses that reward team achievements are:

13% more likely to be forecasting revenue growth than those that reward equally, and 6% more than those that reward Individuals more 7% more likely to be satisfied with achieving business goals than those that reward equally, and 10% more than those that reward Individuals more.
(2011 SMB Collaboration and Communications Study, SMB Group)

Of course, collaboration is not always easy. People work at different paces, with varying schedules and often find it difficult to make the time that team work requires. There are also the operational and security issues that can make collaboration seem daunting. However, technology can help bring colleagues together and address projects that require multiple stakeholders and team involvement.

1.    Use email wisely. It’s by far and away the most used tool for collaboration, but can still produce multiple work streams and access problems. Make sure you have an email service that can be web accessed, tied into your smartphones and kept up to date with spam guards and anti-virus.

2.    Talk can be cheaper. Sometimes you require a regular check-in on a project over the telephone. Make sure you use the most cost-effective solution you can, such as VoIP, even better if you can run your calls through a dedicated, private network. This also offers extra flexibility for conferencing – no set-up costs, a pay-as-you-go model if required and desktop sharing.

3.    Cloud collaboration. The basis for a good collaborative platform can be found in a virtualised server.  Tools can be accessed on a secure LAN sat behind a firewall for ease of working. They’re quick to start running and back-up is provided as standard. There are many different tools you can use online to help you collaborate, from established solutions like Sharepoint, to more recent products such as Huddle, Basecamp or Creatly. It’s worth investing some time in thinking what a good solution for your team might be.

4.    Stay connected. Working online has its advantages, but make sure you have the right connection for the job, a resilient line with good bandwidth capability. You should also investigate a flexible billing solution too. Again, using a virtualised server solution could provide you with previously unforeseen savings.

5.    Keep your project secure. A strong firewall is still a necessity for any business that works online and with multiple logins and collaborators you can never afford to be too careful. Choose a solution that allows flexibility for all your business needs, but insist on network level filtering on IP addresses and port numbers. Even a virtualised solution is heavily protected with effective security. Peace of mind leaves you to address the important issues.

Getting your team collaborating for success is now easier than ever. Contact us to find out how a product like Smart Office could help you and your team get started.

Looking back on 2011, it certainly seems that this is the year that regulators finally flexed their muscles, concluding with the FSA handing out a record £6m fine to a private investor for market abuse but the question remains as to whether all financial institutions have really got the message.

There's no doubt that today's high speed trading culture means that the growth in cross product, cross market trade volumes, will lead to a continued debate around how the industry is regulated in 2012. As the volume of trading shows no sign of slowing, regulators will certainly continue to keep a close eye on any financial institution that is deemed to be manipulating the markets. This year we have seen institutions that have failed to deploy the necessary measures to keep up with regulatory changes in the market, despite the high profile fines shelled out. For example, the CME Group hit a trading firm with an $850,000 fine this week, for an algorithm that went wild and resulted in large sums of oil futures being purchased in quick succession.

Against this backdrop of high profile cases and eye watering fines, most leading investment banks, exchanges and brokerage firms are already getting their houses in order to comply with pending regulations, such as Dodd-Frank Act in the US, and now the EU's Markets in Financial Instruments Regulation (MiFIR). Following on from MiFID, MiFIR is a new financial regulation coming into force in 2013. Critically, this is a 'regulation' not a 'directive' to financial institutions, like MiFID. Despite the long lead time before implementation, all financial institutions will need at least a year to realign their trading strategies, which means that this must now be a priority if it is not already. The growth of competition in trading and clearing will also gain further impetus when MIFiR comes into force; in particular, in the equities market, which has fragmented after the entry of several new trading platforms this year. More competition for providing market infrastructure increases the need to apply a consistent regulatory approach to different providers and ensure the correct trading standards are maintained in this fragmented environment.

The result of new regulations such as MiFiR will see organisations being forced to trade exotic products, including interest rate swaps (IRS) and collateralised debt obligations (CDO), on new “lit” exchanges, with an increased requirement for transparency and reporting. This is even before any new prices and reporting traffic comes out of the exchange. Such regulation will trigger yet more market data flows around the world's financial markets in 2012. In parallel many of the leading financial institutions are looking to improve connectivity into new markets in order to minimise latency for transactions. As a result, the need for greater market connectivity to new exchanges is imperative.

In summary, while increased fines by regulators have been a good thing for market transparency this year, increased regulation will not stop trading firms finding new scope for business. Looking ahead to 2012, an approach of clear and concise regulation alongside greater connectivity into new markets is what both financial institutions and regulators should be striving to achieve.