Equinix key trends in financial data infrastructure

Equinix WhitePaper

Trends in Financial Data Infrastructure
Trends in financial data infrastructure

Bringing together network providers, asset managers, brokerages, exchanges and
trading platforms as well as market data and analytics providers, network-neutral data
centers can dramatically lower the number and cost of high-speed interconnections.

Summary
No stranger to turbulent change, the financial services industry continues to face revenue and cost pressures as well as
an increased need to operate globally. Exchanges have merged and relocated, new financial centers and trading venues
have appeared, and the market share for incumbent players has declined. Established players have been required to
adjust both strategically and operationally to survive in this evolving marketplace. As a result, many firms are rethinking
their technological infrastructure and evaluating co-located services.

Demand for fast, reliable and cost-effective technology has grown significantly in the last decade. Reliability and
throughput are more important than ever before, and firms that were once content to operate their own data centers
or co-locate infrastructure with a financial extranet are evaluating their ability to maintain a competitive position at a
manageable total cost of ownership.

At the same time, the number of options to consider when PARIS SINGAPORE SYDNEY TOKYO ZURICH
CHICAGO NEW YORK FRANKFURT GENEVA LONDON HONG KONG
determining where an order may be best executed has
increased. As a result, the number of required connection points Clearing
Exchanges
Firms
has grown. In this environment, the ability of network-rich data
centers to connect to the various execution venues has made Broker Market Data
Dealers Providers
their value more apparent. Bringing together network providers,
asset managers, brokerages, exchanges and trading platforms as FIX Network Data Analytics
well as market data and analytics providers, these data centers Providers Providers
can dramatically lower the number and cost of high-speed
Asset Financial
interconnections. Managers Extranets

Although data centers owned by network providers currently News
Feeds Carriers
provide a range of co-location services, they have not proven
effective in supporting traffic outside their own network.
Equinix Global Service Delivery Platform
Increasingly, network-neutral data centers are seen as an
effective option for firms pursuing global markets across the
evolving financial ecosystem.
Equinix Global Financial Ecosystem

© 2010 Equinix, Inc. | www.equinix.com

Equinix White Paper 2


Trends in capital markets
As 2009 drew to a close, the Aite Group drafted n D
eveloping a global presence and managing global
an impact note outlining what it saw as the most risk. Aite sees the importance of having a global
significant trends affecting capital markets in 2010. presence as “one of the key issues for sell-side and
Among the drivers: buy-side firms.”

n M
arket fragmentation and increased competition, n D
emand for trading infrastructure innovation,
particularly from multilateral trading facilities including low latency, throughput and support for
(MTFs) in Europe and alternative trading multi-asset class trading.
systems in the Canadian and Asia-Pacific markets.
Taken together, these trends underscore the important
n I
ncreasing commoditization of high-frequency role that technology vendors will play in supporting
trading, particularly as independent traders have participants in the global financial ecosystem. At the same
opened their own trading desks. time, those vendors are evolving, and the roles they play
are shifting to better serve asset managers, brokerages,
exchanges and trading platforms.

The regulators
are coming

BPO Market
and fragmentation
BPO Pick up continues

Going global Risk
back on manager
the plate consolidation

It’s about Risk
the data management
goes real-time

Back to the Clearing
basics for the corner
technology

Commoditizing
high frequency

Source: Top 10 Trends in Capital Markets for 2010. Aite Group, January 2010




“Order flow from other geographic regions can be limited by a carrier’s connectivity,
often affecting the growth of the financial services firm’s business.”

The growth of co-location services Data center in Co-locate in phone Co-loca
exchange-owned building company data center extrane
The changes in roles for technology vendors started a
decade ago, when financial services firms began looking • Local phone company is • Carrier connectivity • Access tho
the primary network. expands. end points
for opportunities to ensure capacity (headroom),
improve connectivity, strengthen business resilience • Carrier connectivity limits • Carrier is territorial and • Extranets
order flow from other does not attract competing territorial t
and manage costs. geographic regions. networks. companie

• Limited space, power, • Add marginal space, power, • Add margi
Financial services firms typically evolve their use of cooling, and headroom. cooling, a
cooling and colocation
data center vendors in four stages: headroom.

1) uilding a data center adjacent to or in a
B
networked building
2) Co-locating in a phone company data center
Ex
S

3) Co-locating in a financial extranet data center

Loca
4) Co-locating in a network-rich data center Local Phone
Loca
Co
Co
Company
In the first stage, the local phone company Local Phone
Company
serves as the primary network. Order flow from
other geographic regions is limited by a carrier’s
connectivity, often affecting the growth of the client’s
STAGE 1 STAGE 2 ST
business, as well. Capacity to grow space, power and
cooling is typically limited in these installations.
Many firms start out in their own data centers, using
In the second stage, the number of carriers to choose the local phone company for connectivity.
from likely expands. Because carriers compete Once firms run out of space, they move to the phone
against one another across many industries and company data center to gain more headroom.
markets, they typically are unable to bring those
networks into the data centers they operate. The
absence of multiple carriers can affect latency.




“In network-rich data centers, financial services firms are able to access dozens of
carriers and extranets, leverage global market data and order flow sources, and add
substantial space, power, cooling and headroom.”

The degree to which headroom improves when Co-locate in phone
Data center in Co-locate in financial Co-locate in network
exchange-owned building
co-locating in a phone company data center depends company data center extranet data center rich data center

on the provider. Data center owners that have made a connectivity
• Local phone company is • Carrier • Access thousands of new • Access dozens of carriers
commitment to this the primary network. expands.
part of the business typically include end points from extranet. and extranets.

additional capacity•in their plans, making it easier for is territorial and
Carrier connectivity limits • Carrier • Extranets are often more • Leverage global market data
does not attract competing territorial than phone and order flow sources.
hosted businesses toorder flow from other
expand. By comparison, a data center
networks. companies
geographic regions. • Add substantial space,
owner that outfits a facility for a small number of clients is space, power,
• Add marginal • Add marginal space, power, power, cooling, and
• Limited space, power, cooling, and headroom. cooling, and headroom. headroom.
less likely to allow room for expansion.
cooling and colocation
headroom.
Financial extranet data centers give participating firms
BT Radianz
an opportunity to access thousands of new end points TNS
EU Networks
from the extranet, improving latency. Firms can also Colt
bring extranets into their own data centers, although Extranet
Savvis Level 3 Abovenet
this does not improve latency to the same degree. Savvis
Local Phone ATT
As with telephone carriers, extranets often compete Local Phone
Local Phone
Company
Company
across industries and clients, potentially complicating Phone
Local
Company
Company

the interconnections. As in stage two, headroom is
Local Phone
Company
marginally improved.

The most mature and effective co-location strategy
employs a network-rich STAGE 1 In such
data center. STAGE 2 STAGE 3 STAGE 4
installations, financial services firms are able to access
dozens of carriers and extranets, leverage global market A
s firms grow, they need more space and more
data and order flow sources and add substantial space, connectivity options, so they move to a financial
power, cooling and headroom. extranet data center.

The firms that choose network-neutral data
The network-rich data center also helps manage centers generally see the fastest growth and most
overall cost and improve throughput, typically headroom while also dramatically increasing the
driving down latency through improved access and connectivity options for clients and simultaneously
reducing connectivity costs.
connectivity. Six-sigma uptime (99.999%) supports
business resiliency, as well.




“The nature of this global marketplace means that the need for high-volume,
reliable interconnections with strategic customers and partners has increased
exponentially.”

Comparing distributed and hub
(co-location) models
To manage the growing complexity of the financial Distributed model fails as bandwidth requirements
and/or number of end points increase
services ecosystem, many firms have pursued a model
Exchanges
in which specialist services are distributed across a
Broker Market Data
wide variety of network connections. In this model Dealers Vendors

exchanges, data vendors, clearing firms, financial
extranets, broker-dealers and others have operated as
FIX Network Clearing
nodes on a far-flung network. Providers Firms

This approach is effective in supporting
specialization within a firm, and network utility and
Data Carriers
system value of a financial network has increased Analytics

as users and providers are added to the distributed
ecosystem. Unfortunately, the nature of this global
Asset Financial
marketplace means that the need for high-volume, Managers Extranets

reliable interconnections has increased exponentially. News
Feeds

The distributed model fails as the number of
10 End-points = 45 Connections Metcalfe’s Law: N(N–1)
endpoints increases. Using Metcalfe’s Law, we see 100 = 4950 Connections 2
that the number of endpoints required to support 10,000 = 49,995,000 Connections Reed’s Law: 2N–N–1
a distributed model increases from 45 (10 users)
to almost 5,000 (100 users) and nearly 50 million
Metcalfe’s Law
(10,000 users). Eventually, the cost of maintaining a U
tility and systemic value of the financial network
specialized, distributed infrastructure overwhelms increases as users and providers are added. The
the benefits associated with that system. need for connections increases exponentially.

Reed’s Law
The distributed model has also struggled to maintain E
ventually, the costs and infrastructure needs
the capacity required to support algorithmic overcome the economic benefits of the system.
trading, among other demands. The result:
Throughput
bandwidth requirements are increasing rapidly, Algorithmic trading is driving up network capacity
and infrastructure upgrades are trending toward needs, dramatically increasing bandwidth require-
continuous. ments and demanding continuous infrastructure
upgrades.




“The reduction in the number of circuits reduces costs even if bandwidth required
and the number of end points increase.”

By comparison, a centralized financial ecosystem Centralized interconnection points leverage
leverages economies of scope and scale for all economies of scope and scale for all participants
participants. By co-locating within a network-rich Exchanges
data center, exchanges, data vendors, clearing firms, Broker
Dealers
Market Data
Vendors
financial extranets, broker-dealers and others can
dramatically reduce the number of circuits required Clearing
FIX Network
to support multiple counterparties. Providers Firms

This approach helps financial services reduce EQUINIX EQUINIX
NEW YORK LONDON
and better manage costs while also improving
throughput. Participants in a network-rich data
Data
center pay for one data connection into the data Analytics Carriers

center, and counterparty transactions take place
within the data center. Asset Financial
Managers Extranets
News
In this configuration, high-speed local area network Feeds
(LAN) connections replace individual wide-area
network (WAN) circuits that the distributed model 100 Counter Parties = 200 Circuits
The Law of the Hub: HN
(96% reduction)
uses to reach counterparties. The reduction in the
number of circuits reduces costs even if bandwidth Cost
required and the number of end points increase. n ay for one network connection — into the datacenter.
P
n Counterparty connections happen inside the datacenter.

The centralized or hub model also improves n AN cross-connections replace individual WAN circuits
L
throughput. The efficient, network-rich data center to counterparties.
configuration reduces latency to its physical minimum. n ramatically reduce costs even as bandwidth and end
D
The shared internal connections support significant points increase.
growth, so individual user bandwidth can increase
Throughput
without incurring any cost increases or penalties. n atency reduced to physical minimum, while bandwidth
L
can increase exponentially without cost penalties.
n 99.999% availability.




The value of a shared centralized financial n U
se dense interconnection points to reduce costs
ecosystem is also seen in availability. As noted for circuits;
earlier, 99.999% uptime is the standard for these
n L
everage economies of scale for all participants in
configurations.
the centralized network;
Unquestionably, the financial industry will continue n S
implify connection needs by housing participants
to scale, and its technology must increasingly do so in a limited number of geographic locations; and
in new, more predictable and more effective ways.
By migrating from a distributed architecture to one n S
implify network management by unifying
that capitalizes on the “law of the hub,” financial connection standards in an environment in which
services firms will be able to: throughput and uptime are critical measures.

“Law of the Hub”
Centralized interconnection points leverage
Distributed model fails as bandwidth requirements
and/or number of end points increase economies of scope and scale for all participants
Exchanges Exchanges

Broker Market Data Broker Market Data
Dealers Vendors Dealers Vendors

FIX Network Clearing
FIX Network Clearing Providers Firms
Providers Firms

EQUINIX EQUINIX
NEW YORK LONDON

Data Carriers
Analytics
Data
Analytics Carriers

Asset Financial
Managers Extranets Asset Financial
Managers Extranets
News News
Feeds Feeds

10 End-points = 45 Connections Metcalfe’s Law: N(N–1) 100 Counter Parties = 200 Circuits
The Law of the Hub: HN
2 (96% reduction)
100 = 4950 Connections Dense interconnection points reduce costs for circuits.
10,000 = 49,995,000 Connections
EconomiesLaw: 2N–N–1
Reed’s of scale available for all the participants in the network.
Limited geographic locations simplify connection needs.
Bandwidth can increase exponentially as needed.




EQuinix co-location services
Over the last decade, Equinix has developed a Equinix maintains robust, diverse inbound and
comprehensive network-rich data center solution outbound connectivity options. Broad carrier choices
built around four core principles: give Equinix clients an extensive mix of high-
bandwidth, low-latency network offerings, ensuring
n C
onnectivity
competitive pricing.
n C
apacity
n C
ost control Equinix also maintains headroom for its clients to
n B
usiness resiliency grow. Focusing on physical space, power and cooling,
the firm’s goal is to operate strategically-located data
Proximity to the financial services client base is a key centers and expand facilities and campuses to ensure
component of the Equinix data center business model. Equinix’s ability to meet the needs of new clients and
Each data center includes the clearing firms, exchanges, expansion requirements for existing clients.
broker-dealers, market data providers, network
providers, data analytics providers, asset managers, This considered approach helps Equinix clients
financial extranets and carriers in a given manage their costs, particularly when
geographic space. Strategic locations compared against the private data center
in key global market centers, CO model. With Equinix, firms move
e NN E
combined with in-building
E NC C
to LAN-based connections to
cross-connects, provide low LI accommodate demands for
SI TI V
latency and high throughput. RE IT Y higher bandwidths.
This approach can
Execution venues typically dramatically reduce
place matching engines or CO connectivity costs and
access nodes in Equinix ST Y lower the trajectory for
data centers, improving CO C IT technology investments,
throughput. Internal to the data PA
NTR O CA improving margins.
center, local cross-connects support L
high-speed data transfer (100 Mbps, Finally, Equinix helps its clients maintain or
1 Gbps or 10 Gbps) at fixed monthly rates, improve business resiliency. The landscape for
proving participants with both capacity market centers has changed repeatedly in the last
and cost stability. decade, and market fragmentation and related regional
competition is expected to increase.
Equinix is “carrier-neutral,” and it offers the use of
networks and financial extranets that are critical to the In addition to a data center architecture that offers
success of its clients. Even in the firm’s most established significant uptime, low latency and cost predictability,
data centers, up to 80% of the cross-connects go to Equinix offers its clients flexibility and broad
carriers, making it critical to support efficient data connectivity options that will outlast the changes, some
transfer outside as well as within Equinix facilities. not yet predicted, in the financial services marketplace.




Equinix: Enabling the Global Financial Marketplace
For buy-side firms, Equinix data centers provide access to a broad range of trading, risk and compliance vendors. Each data
center offers a resilient infrastructure proven capable of meeting the most demanding requirements. Equinix provides onsite
connectivity to a broad range of liquidity pools, pricing and data vendors, trading systems and brokers. Equinix also helps buy-
side firms reduce connectivity costs, simplify data center management, and maintain the ability to scale with ample headroom.

For sell-side firms, Equinix data centers offer low-latency connectivity to key execution venues and data sources. Each facility
provides onsite access to regional, national and global carriers, simplifying interaction and reducing connectivity costs. Data
centers also link members of the local financial ecosystem, improving access to potential customers and partners. Equinix
provides sell-side firms with a broad range of choices in low-latency data feeds. The data centers support high-volume
market data feeds at a manageable (and predictable) cost, even as volumes fluctuate.

For execution venues, Equinix data centers co-locate matching engines and access nodes, providing onsite carrier access
and the headroom needed to accommodate a growing number of members and liquidity providers. Data centers also
ensure proximity to market data distributors as well as access to members of the local financial ecosystem, increasing
opportunities for order flow.

As exchanges merge and relocate and new financial centers and trading venues emerge, Equinix provides execution
venues, buy-side and sell-side firms with the foresight and extensive connectivity needed to cost-effectively support
their businesses in an uncertain environment. In choosing Equinix, members of the financial services ecosystem can be
sure that their data center decisions will prove both cost-effective and operationally sound over the long term.

Buy Side Sell Side Execution Venues

Real-time Market Data Feeds

Portfolio
Management
Execution Matching
FIX Gateways and Connectivity

FIX Gateways and Connectivity

Order
Risk Management Algorithms Engines
Analytics Systems
Exchange Gateways
Feed Handlers

Smart Order Matching
Compliance Execution Routing Engines
Management
Pre-trade Systems Post Trade
Matching
Analytics Settlement and
Engines
Processing
Signal Order
Generation Management Post Trade Matching
Systems Compliance Engines
Trading and Reporting
Algorithms
Latency
Monitoring




About Equinix In The Global Financial Markets
Equinix provides a neutral meeting place for the world’s leading financial market participants including trading venues,
buy and sell side firms, market data providers, technology providers and financial networks; that locate servers and
infrastructure within Equinix data centers in order to support highly reliable, low latency connectivity for a broad range
of market participants. Learn more at: http://financial.equinix.com.

This white paper contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially
from expectations discussed in such forward-looking statements. Factors that might cause such differences include, but are not
limited to, the challenges of acquiring, operating and constructing IBX centers and developing, deploying and delivering Equinix
services; unanticipated costs or difficulties relating to the integration of companies we have acquired or will acquire into Equinix;
a failure to receive significant revenue from customers in recently built out or acquired data centers; failure to complete any
financing arrangements contemplated from time to time; competition from existing and new competitors; the ability to generate
sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the loss or decline in business from our
key customers; and other risks described from time to time in Equinix’s filings with the Securities and Exchange Commission. In
particular, see Equinix’s recent quarterly and annual reports filed with the Securities and Exchange Commission, copies of which
are available upon request from Equinix. Equinix does not assume any obligation to update the forward-looking information
contained in this press release.

Equinix and IBX are registered trademarks of Equinix, Inc. International Business Exchange is a trademark of Equinix, Inc.


Equinix key trends in financial data infrastructure

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