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The Changing Landscape of the Electronic Trading Industry

The model for financial trading has dramatically shifted over the last couple decades. It has transitioned from the traditional execution of human traders calling and signaling across large open pits to sophisticated computer systems executing trades almost instantaneously in virtual market places. With this shift, the technology requirements of the trading workplace have evolved as well. This article reviews the changing landscape of the electronic trading industry, focusing on the new financial realities firms must face as well as how technology and infrastructure contribute to the success of these companies.

Period of Expansion
A considerable amount of growth for trading firms was seen between 2000 and 2009. This included the inception of numerous startup companies and the investment of considerable capital into bleeding-edge technologies to gain an early foothold in a young industry. High-powered trading platforms in densely populated office environments and on-premise data centers led to a rapid increase in power and cooling needs and had a profound impact on the MEP and technology infrastructure requirements for the workplace environment:

  • Space had to be reallocated to accommodate centralized uninterruptible power systems, high-density data cabinets, and expansive telecommunication pathways.
  • Large supplemental cooling equipment was needed to sufficiently cool the increasing IT load and accommodate after-hours trading.
  • Workstation furniture evolved to physically support numerous personal computers and monitor clusters while offering greater flexibility to meet the unique ergonomic needs of each trader. 

While these concerns are still important in today’s electronic trading workplace, there are new challenges that lie ahead.

The Plateau Effect and Workplace Surplus
In general, the growth of electronic trading has remained stagnant over the past four to five years due to the recession and low interest rates. Governmental regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act are fundamentally changing how financial companies are allowed to manage risk. Profit margins on trading transactions have also declined due to increased competition and a smaller investor base. As a result of these new realities, fewer trading startups are able to be profitable and many companies are taking a more conservative approach to investing in new technologies.

With the overall slowdown of the economy, many trading firms that underwent staff reductions now find themselves with a surplus of real estate and underutilized infrastructure that require ongoing maintenance. To reduce these excess operating costs, companies can either repurpose the space in a partial sublease agreement or relocate to a different space altogether. However, there are pros and cons with each option.

For example, a partial sublease arrangement avoids a massive relocation of resources and staff.  However, there are security risks associated with multiple tenants potentially sharing on-premise data center space and common telecommunication pathways. Office relocation offers greater flexibility to ensure a secure work environment, however, it also requires office space layout planning, reassessing power and cooling needs, evaluating the available utilities and amenities offered by different sites, and developing a thorough IT migration plan. (See “Preparing IT Clients for an Office Move” by Jack Sturm to understand more about planning the IT portion of an office relocation.) Due to the complexities involved with each option, a significant amount of expertise and coordination is necessary to understand what is most appropriate for a company to choose.  

Technology’s Role
While there are more challenges for these high-tech trading firms, technology is still a critical component that drives this industry. Increased data transmission speed is a significant factor in enabling a firm to respond effectively to the market and execute trades within sensitive time parameters. Many firms co-locate their own servers near exchange servers to minimize latency as much as possible. On-premise local area network (LAN) rooms are over-provisioned with bandwidth capacity to accommodate sharp spikes in trade volume, and adequate bandwidth capacity must also exist between trading display monitors and the computing interface for personnel to respond appropriately to rapidly changing market data. For companies that utilize a more standard operating interface, virtual desktop infrastructure (VDI) can be implemented, which pushes the primary computing functions from the workstation to a centralized environment (e.g. MDF).  This significantly reduces power, cooling, and IT space requirements in the workplace environment.

The success of the electronic trading industry is highly dependent on trading volumes and price volatility within the financial markets. It is yet to be determined whether the current economic stagnation is the result of a cyclical market correction or if these conditions reflect a “new normal” for businesses. Regardless of the financial outlook, however, companies will continue to leverage technology to gain a competitive advantage in the long term while reducing operating costs in the near term.

Contact ESD to learn how we can assist you in understanding the important complexities of your workplace environment and determining the appropriate infrastructure needed to support it. Whether you are considering expansion, subleasing, site relocation, or enhancement of existing systems, we have the expertise to be a valuable resource in the transformation of your facility.