No, it's not a new HBO show starring Sarah Jessica Parker as a lovelorn quant. It's Volta, the first bulletproof data center built in London in the past ten years. At a cost of more than $40 million, its proximity to the financial heart of The City is geared towards shaving milliseconds off execution times in the high frequency trading quest for zero latency.
While this has been the norm in New York City for many years (a number of the buildings surrounding the various exchanges don't even have people in them, just servers), Volta is the first of its kind in London. And the $40 million was just the cost of the building. I'm guessing the guts were at least another $15 million on top of that:
The 91,000 square-foot building, half of which will be filled with 1,600 server racks, will consume more power than the Shard, which as Europe’s tallest building is more than ten times as large. Most of that will go towards servicing high-frequency trading firms. It is connected to various trading venues, including the London Stock Exchange, as well as Basildon and Slough, innocuous commuter towns that happen to host high-frequency-trading data centers. An under-sea cable connects it to the International Financial Services Centre, homes to the European headquarters of dozens of big banks.
It all seems a bit silly to me, but I probably just don't get it. With all the competition in HFT today, I'm forced to wonder how much of a difference a few milliseconds makes. I mean, think about it: even if you're right two-thirds of the time (which would make your algo pretty much god-like), you're still gonna get beat once out of three times. Add to that the miniscule margins you probably capture on the trades you get right, and is it really worth all the hassle and expense of a data center across the street from the exchange?
Maybe some of you quant guys can weigh in and explain the advantages of a data center in the middle of The City. Couldn't it theoretically be built anywhere and at considerably less cost? I'm reminded of that huge dataline they strung between New York and Chicago, and how we haven't heard of anyone killing it because of that thing.
What am I missing here?
Several milliseconds can definitely have a large impact on trading today, since it's turned into such an arms race. That said, I think it's just a way to make money for Volta. If I'm a HFT firm there, I would want to use their services to get ahead of my competitors by those milliseconds, but my competitors would do the same. This Nash Equilibrium of all firms (who can afford it) paying for the service results in a net scratch for the competing HFT firms and $$$$ for Volta.
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