Euronext’s tech migration sprint alarms electronic traders

Co-location users sound warning on plan to chop two years off data centre move from UK to Italy

  • Euronext currently runs the national stock exchanges for Belgium, France, Ireland, the Netherlands and Portugal from an industrial park outside of London.
  • The exchange group will now add the Italian stock exchange to its list of venues and, as part of its acquisition, it plans to move its technology to Italy.
  • Plans for the relocation have been accelerated to the second quarter of next year, but high-speed electronic trading firms can’t keep up.
  • Electronic market-makers will need to reassess how the new site will fit in within their current architecture.

Tanzania’s wildebeest take a full year to loop around the Serengeti National Park, travelling a total distance of 1,200 miles. The inhabitants of the Euronext ecosystem – consisting of matching engines, servers and ancillary systems – are having to move half that distance in the same timeframe.

There are doubts the great tech migration can be achieved on schedule, as some of the big beasts that use Euronext are warning it leaves them with too little time to prepare.

“There is big concern among market-makers about getting this done in time,” says an equities specialist at a large proprietary trading firm. “It is a huge project to get done in 12 months.”

The firm would normally ask exchanges for two years’ notice to properly plan a data centre move, the specialist adds.

On April 29, Euronext announced it had cleared regulatory hurdles to acquire Italian stock exchange Borsa Italiana from the London Stock Exchange Group. As part of its acquisition plans, Euronext will migrate its data centre – home to its matching engine and market data systems – from Basildon in the UK to Bergamo in northern Italy. 

When Euronext first informed investors about the plan, in November 2020, it suggested a date of 2024. But the latest announcement instead proposes the new data centre go live by the second quarter of next year.

Market-makers that place their trading servers as close as possible to Euronext’s matching engine – a practice known as co-locating – must buy and install new systems to connect to the new data centre run by Italian web-hosting company Aruba. Two market-makers and an industry source sound the alarm about the tight schedule.

“We have concerns that the timelines are very short,” says an industry source. “This is a fundamental change that happens in the real physical world. Servers have to be built and installed at a different location and tested. There are risks of operational problems along the way.”

The chief executive at a small proprietary trading firm agrees the timeline is a “problem”.

There is big concern among market-makers about getting this done in time
Equities specialist at a large proprietary trading firm

Euronext has been told by market-makers of their concerns according to the industry source, who is familiar with these discussions.

A Euronext spokesperson says in an emailed statement that the exchange is in dialogue with involved stakeholders and working closely with clients to provide them with further assistance and address any queries. 

“Bilateral meetings occurred with all co-location clients to answer their questions and address their concerns. Some customers – both large and small – [have] already indicated that they will be ready,” says the spokesperson.

Some are indeed slightly more optimistic the timeline can be met, but agree it will be tight. An executive at a low-latency technology vendor says the plans are “aggressive” but “doable”.

A trading technology expert who was previously employed by a large electronic market-maker says it is logistically possible to install systems at the new site in time, but it does not leave much room for preparing and finding the optimal setup within the firm’s current architecture.

“I’m not saying it’s impossible, but it’s quite a tough timeline to get all these different components right,” says the trading technology expert. “So I can see why some firms might be concerned that it’s tight.” 

Bergamo
Bergamo, Italy

Moreover, some mandatory tests are currently planned to take place in the first quarter of 2022, such as connectivity to the exchange, according to the Euronext spokesperson. Being ready for testing at that earlier stage is an even more demanding timeline, according to the trading technology expert. 

The second quarter go-live date came as a surprise to some. The 2024 date originally suggested reflected the expiry of Euronext’s existing tenancy on the site at Basildon. Sources who spoke to Risk.net for this article didn’t know why Euronext is seeking a shorter timeline.

Euronext’s spokesperson explains the move avoids an overlap with other tech migrations currently planned for the near future. The London Stock Exchange Group is also planning to move its data centre later in 2022, while Switzerland’s Six and Spain’s BME are expected to consolidate their platforms. The spokesperson says it also avoids a double migration project for the group, because Borsa Italiana will migrate to Euronext’s trading technology in 2023. 

The trading technology expert says a short timeline does make overall sense not just for Euronext, but for the market-makers as well. As long as the pending move is hanging over them, it is likely to discourage investments in new technology that the firms need.

“Some changes it would be nice to do, but in the end you don’t really want to do it because you know you’re going to be moving,” says the trading technology expert. “Maybe something is bothering you, the latency doesn’t have enough capacity so you have traders on your doorstep every day – I would just get it done.”

Not so high-speed traders

Those deploying low-latency trading strategies often rely on microwave technology to transfer pricing information between trading servers located at different exchanges. A popular route the largest market-makers have established is between Frankfurt and London as – for example – movements in the EuroStoxx index on Eurex have ripple effects on the price of European equities and futures listed on UK-based exchanges.

There are currently two providers of lines between Milan and London: McKay Brothers and Six. It’s possible for existing lines between Borsa Italiana and London to be rerouted to connect to Aruba’s site in Bergamo, but it can take “quite a long lead time” to establish, says the trading technology expert, as trading firms scrutinise the capacity and speed of the lines.

“A move like that for them [large proprietary trading firms] is very impactful because usually even if the infrastructure and everything in there has been resolved before the user acceptance testing and the go-live, they will be fine-tuning all of the time,” says the trading technology expert. “They are going to want to make sure everything is massively optimised.”

Euronext’s move to Bergamo means the link between Italy and London has become far more important, due to European equities listed on Euronext also being available to trade on secondary venues in London, such as Cboe Europe.

There are expectations the increased importance of the line will prompt electronic market-makers to invest in new microwave lines of their own to optimise the speed at which information can be sent. This would, however, take far more time to fully establish – potentially years.

“If I’m sitting in Amsterdam, I somehow need to connect back to there, or maybe Bergamo needs to be connected back to Slough, because that’s where my low-latency trading strategy is being run between Euronext and Cboe in Slough, so I need to have a low-latency route otherwise I can’t be competitive,” says the trading technology expert. “If they want to connect to the new data centre that way, it can take a while.”

Building systems

Market participants say setting up infrastructure at the Bergamo site should be straightforward for the larger market-makers that have in-house engineering teams. Fibre connections and the installation of the equipment should be possible in as little as three months, although firms will want some extra time to test and refine the setup.

The more firms rely on third parties, however, the slower the process may be. For example, if traders rely on rented rack space from a third party, they will have to wait for the provider to build out their systems and agree the commercial terms of a contract before they can begin to build. And the size of the Euronext client base poses risks of its own.

“If everyone needs to use the same people at the same time, that creates a bottleneck,” says the industry source.

A further factor that could extend the timeframe for this part of the move is a global shortage in semiconductors used within servers. Orders for servers can take between two and four weeks to deliver in normal circumstances.

“We just ordered some servers and we got double the timeline we normally have and we are a huge buyer with solid contracts,” says the equities specialist at the large proprietary trading firm. “I can’t imagine a smaller shop that doesn’t normally buy servers on a quarterly basis getting the order quickly.”

Farewell to Docklands

Sources say those with a more complex and dispersed infrastructure will find it particularly tough to meet a second-quarter go-live date, because they may have to rethink the location of their architecture and how to connect it to the new site.

“Not all of them rely on the same infrastructure – I’m not just talking about the pieces co-located in the exchange, I’m talking about the whole infrastructure,” says an executive at a software company.
“For example, where are your risk management servers located, is it your own office, some other place, or at Euronext?” 

For that reason, the executive says the feasibility of the 2022 timeline will vary depending on the firm. For some, it could be impossible because of the wider implications for the firm’s technology infrastructure.

Electronic trading firms’ infrastructures typically run on a critical loop between the trading systems connected to Euronext and other ancillary systems that record position information and provide risk management.

Those ancillary systems should have a fast connection to trading systems but do not need to be right next to the exchange. The trading technology expert says some firms had located ancillary systems used to support trading on Euronext in the Docklands area of London rather than in Basildon, to take advantage of cheaper rental rates for server cabinets. Those systems are also connected to other trading systems for other exchanges based in London and south-east England.

The rationale for keeping ancillary systems in London or using the same systems for several exchanges may not hold following Euronext’s move to Italy. The trading technology specialist says he expects electronic trading firms will be considering basing those within Euronext’s new data centre, which is expected to be cheaper than Basildon, or basing those somewhere else in Italy. Alternatively, it could now make sense to locate support systems closer to Frankfurt, to be in close proximity to Eurex as well.

Editing by Philip Alexander. Additional reporting by Luke Clancy

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