The senior vice-president of global IT operations at Nasdaq OMX, Carl Magnus Hallberg, explains how co-location is making trading faster and why exchanges are becoming more like technology companies.
Technology chiefs at the world's fastest exchanges sit at the bleeding edge of corporate IT. Few know this better than Carl-Magnus Hallberg, senior vice-president, global IT services at mega-exchange operator Nasdaq OMX, whose remit includes day-to-day management of all the exchange's IT operations and services, from desktops and e-mail to the exchange operator's trading systems (excluding the trading system software development). Mr Hallberg, who became part of Nasdaq OMX following Nasdaq's acquisition of the Nordic exchange operator OMX in 2007, is also responsible for overseeing the management of the exchange's extensive network and the relating challenges regarding network speed or latency - no small task in today's hyper-competitive equities market.
Indeed, in a business where a microsecond can constitute millions of dollars, latency is a touchy industry subject. For Nasdaq OMX and NYSE Euronext, maintaining ultra-low latency is absolutely crucial as upstart contenders BATS Exchange and Direct Edge continue to cannibalise their market share. Providing server space inside the exchanges' own data centres, in a business model known as co-location, is now a critical service by which the incumbents can offer their speed-hungry members a means of shaving milliseconds off their trade roundtrip. "Within the US market we have gone very far in latency on our system," says Mr Hallberg. Nasdaq OMX now offers a 250-microsecond roundtrip from the moment a member message hits the edge of the exchange's network to the moment it shoots back out again, with a capacity of 1 million messages per second, says Mr Hallberg. "We have come very far in the race."
Co-location calling
Growing market demand for co-location services has driven Nasdaq OMX to buy up more data centre space in New York from its existing data centre provider, Verizon Business. Under the agreement, Nasdaq OMX rents a large chunk of Verizon Business's data centre which it then sublets to super-fast brokerages, prop desks and automated market makers.
"We have a whole data centre in New York where we are the senior tenant. Verizon provides us with the space and day-to-day management associated with that space and we provide the co-location services," says Mr Hallberg. The agreement will also see Nasdaq OMX transfer its proprietary Nordic access network to Verizon which, as one of several extranet providers, will manage the connectivity between the exchange and its members. "If you went back 10 years you could probably argue that network and network connectivity was something that had a bit of value-add in our industry," says Mr Hallberg. "But Verizon is able to bring on new advanced networking technology much faster than we can because it is their core business and at the same time it can make it a commodity business."
A technology business
What constitutes the core business of the major exchange operators is an increasingly moot point, however. The largest operators have built out major technology businesses during the past decade in a bid to diversify their income stream by capitalising on years of research and development and acquired expertise. The likes of NYSE Euronext and Nasdaq OMX (which was attracted to OMX due to its technology arsenal) are becoming as much if not more technology providers than they are exchange operators, say some market-watchers. But even smaller Asian exchanges, such as South Korea's KSX, are increasingly licensing their technology to other regional exchanges. "An exchange today has to be more of a technology company than in the past," says Mr Hallberg. "This is simply because of the requirements put on to us to serve the market in the way that it wants to be served - where you have not only performance requirements in terms of throughput and latency but also in terms of the functionality you provide, such as product ranges."
But this also presents additional challenges. Nasdaq OMX's move to buy up more co-location space, for example, comes at a time of major uncertainty in the US equities markets, with the US Securities and Exchange Commission currently investigating a range of market practices including co-location. For Mr Hallberg, the exchange's status as a technology provider brings with it the burden of ensuring that the distribution of that technology is fair and constitutes a so-called 'level playing field'. In the case of co-location, he says, the "fairness within the data" is also under review. This debate, which focuses on the distance between servers situated inside the data centre, underlines just how microsecond-focused the market structure has become, says Mr Hallberg. "We are almost past the point of co-location or non-co-location," he says. What lies beyond this point, however, remains to be seen.
Career history
Carl-Magnus Hallberg
2008 - Senior vice-president, global IT operations, Nasdaq OMX
2001 - Head of IT services business, OMX Market Technology
1992 - Vice-president EMEA sales, internet and data communications, Ericsson
