By Alexa Jaworski
Capital markets firms spent $1.8 billion on data center space, power and cooling last year, according to a new report from research firm Tabb Group. The study attributes 50 percent of that figure to sell-side firms.
“As the markets get faster for some products and more complicated for others, the need for processing power is only going to grow,” said Kevin McPartland, senior analyst at New York-based Tabb and author of the study. According to the report, execution venues account for 23 percent of spending, proprietary trading firms 13 percent, asset managers 10 percent and hedge funds 4 percent.
Firms are increasingly finding it more cost-effective to use off-site data centers than build and continuously expand their own, said McPartland. Data center strategies are based on “the same kind of factors that guide firms through the buy-versus-build decision process in regard to software,” says the report. “Whereas major market participants once owned the majority of their data centers, many are now looking to third-party providers to either supplement or replace their existing space.”
The decision to sign on with a data facility provider is “an efficiency play,” noted McPartland. “For those trading in electronic markets, it’s not always about being in the same room or same building, but about being in relative close proximity to the market centers. The level of sophistication of these facilities is continuing to go up.”
The front office has grown more aware of the importance of data centers, said McPartland, as well as the considerable electricity required to run cutting-edge hardware. Power was considered a pressing concern by 82 percent of those surveyed, including front-office staff and technologists at bulge-bracket broker-dealers, proprietary trading firms and execution venues.
If a single blade server consumes about 100 watts per hour, a data center cage with 100 racks and 30 blades per rack would use 300,000 watts every hour, noted McPartland. That is approximately the amount of power used by 3,000 suburban U.S. homes, he said, excluding the additional energy to heat and cool the servers. Financial services data centers are the largest users of power in New Jersey, where many of the facilities are established, added McPartland.
Both cooling and physical space were named as a significant concern by 64 percent of respondents, while connectivity, capacity and cost were all cited by 18 percent.
The report also points to pricing and processing of complex derivatives instruments as a driver for data center consumption. As overnight calculation processes have moved closer to real time, they have moved from desktops to data facilities, says the study.
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