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For Rent: NYSE Cloud Power From N.J. Fortress

Mahwah, N.J., data center will offer infrastructure-as-a-service to traders outside licensed New York Stock Exchange membership, starting in the third quarter.
Companies can rent a dedicated server and run their trading systems on bare metal with no virtualization latencies, but that will be more expensive. NYSE guarantees every infrastructure user will be the same cable distance from its matching engine, O'Sullivan said. That includes even the NYSE's biggest and oldest licensees, so no one will have a speed advantage from having a shorter distance to travel from order to execution.

That would have been harder to guarantee if NYSE Technologies still maintained four or five separate centers. By consolidating in Mahwah, it's bidding for cloud customers by providing a level playing field.

NYSE Technologies has sought to further open its exchange by creating a middleware messaging API and making it open source code with the Linux Foundation. In the past, such an API was proprietary code, O'Sullivan conceded. But to attract participants to its marketplace and assure them they won't be subject to NYSE lock-in, it's opened up the API, dubbed Middleware Agnostic Messaging API, or OpenMAMA. A large steering committee of NYSE licensees manages its ongoing development.

NYSE has worked out arrangements with its licensees that allow them to sponsor a non-member that uses the sponsor's trading system. The non-member user has limits and the sponsor is responsible for checking that the user conforms to identification and authorization procedures. The sponsor also performs risk checking on all trades. A NYSE license holder will collect fees from the third-party traders for the use of their licenses. In effect, the sponsor remains responsible for anything that goes wrong during the use of its license; the risk checking is required both before and after trades. Once a third party has permission from a sponsor, it can use a trading system to follow its own trading timing and strategy. This hasn't been possible in previous NYSE trading procedures.

About 30% of the world's investment transactions are believed to flow through the NYSE today. NYSE's at risk of losing that market share to rivals such as NASDAQ, which handles about 11% of transactions, or the BATS Global Markets high-frequency trading exchange, which is believed to have handled another 11%. The implosion of BATS's IPO Mar. 23, as it launched over its own exchange and fell from $16 to under two cents in nine seconds, may have at least temporarily reduced the danger of NYSE market share erosion.

Nevertheless, NYSE, seeing the growth of new exchanges, is using technical services in the cloud as a way to reverse that process and lure more traders back inside its electronic confines.

"We want to give people a platform that lets them innovate. They can communicate with other parties over the network and invent new ways of sharing capital across the country," O'Sullivan said.

Charles Babcock is an editor-at-large for InformationWeek.

The pay-as-you go nature of the cloud makes ROI calculation seem easy. It’s not. Also in the new, all-digital Cloud Calculations InformationWeek supplement: Why infrastructure-as-a-service is a bad deal. (Free registration required.)