In only three to four milliseconds, stock prices can change quite a bit. This makes latency reduction more important than ever for you to achieve faster and better trade execution in the highly competitive securities business.

Many buy side and sell side investment firms are making it a priority to find ways to gain a competitive advantage by increasing speed and reducing latency when accessing market data and trade execution venues.

Rules-based systems, improved models for analyzing market data for trade execution, and the growing use of algorithmic trading are all making the need for speed even more critical.

And, as market data volumes continue to grow, firms of all types require faster access and reduced latency. The Options Price Reporting Authority (OPRA) data volumes are currently at their highest levels with connectivity bandwidth requirements in excess of 100 Mbps. Trends indicate that the volume will continue to grow.

The Co-location Solution

How can you respond to this important dilemma? One clear choice is to move in closer proximity to the markets by co-locating your systems and networks in the same data centers that operate critical systems and networks that power the exchanges and national market systems. Choosing the right co-location data center is easy if you follow these steps.

1. Identify your most important business requirements and translate them into specific co-location facility needs. For example, is proximity to market centers for faster trade execution a priority?
2. Develop infrastructure specifications for your required service levels. Any facility should offer high availability with quality service levels related to network and storage services.
3. Choose facilities that have proven expertise in building and managing high availability systems and services. Customized operational services should be provided to facilitate your application management needs.
4. Evaluate the scalability of the facility infrastructure and services. Is there sufficient capacity to support growth in applications, trading system and market data?
5. Compare prices. Look for hidden costs such as cross connect fees, incremental power and cooling, cabinet configuration options, etc.
6. Physical security should include trained security staff and 7x24x365 operations. Look for extensive personnel background checks, perimeter control, security controls, electronic video surveillance, and state-of-the-art access control management policies.
7. Seek vendors with relationships with local, state, and federal government agencies. This could improve your service priorities or recovery efforts in an emergency.
8. Ask for references and proven experience in the financial services industry. These vendors are usually more familiar with best industry practices and regulations.
9. Choose vendors that can offer packaged solutions that include high availability network services coupled with low latency "reduced hop" hosting infrastructures.
10. Negotiate flexible contract terms with a Service Level Agreement (SLA) that best meets your business needs.
11. Check the financial stability of the provider to make sure they will be there to grow with you.
12. Evaluate the business continuity plan of the provider.

Milliseconds count. Whether you are a buy side or a sell side firm, latency will affect your competitive position in the marketplace when it comes to executing trades. As such, the issue of reducing latency must be priority as the need for speed continues to grow in an expanding marketplace.

Vincent Lanzillo is Vice President at Sector, responsible for Technical Services. For more information on latency reduction, visit www.sectorinc.com and download our free whitepaper, "Low Latency Trade-Order and Market Data Considerations for the Financial Marketplace."