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Co-location for Co-location?

March 7, 2008

Co-location has obviously been very popular in bringing down the latency of trade execution, with algorithmic trading software being located on-site at trading venues by the banks and hedge funds. Interesting problem brought to my attention by a senior equities technologist at one of the banks is that co-location is fantastic at reducing latency if you are considering just one trading venue.

In the new(ish) world of multiple trading venues then regardless of how low the latency is from co-location at one venue, centralised smart order routing (SOR) means that these advantages are lost to a degree since you always have the latency of the round-trip on market data and execution to consider to and from the centralised SOR facility to each of the separate (remote!) trading venue. Unsurprisingly then many of the players are looking at locating SOR and algo software physically near multiple trading venues, Makes you wonder where it will stop, maybe all of the exchanges in the world should relocate to somewhere like Slough?…