Liquidity Centers Are Big Business

Truth be told, data centers aren't all that exciting. The server rooms largely are nondescript, dimly lit, extremely utilitarian and cold -- both literally and aesthetically.

But the technology inside the buildings is another story. The technology continues to evolve at blinding speeds, with stages of technological innovation often visible inside a single facility. Newer data centers are huge -- typically 200,000 square feet or more -- and they often roll out in phases, which makes it possible to witness improvement from Phase 1 development to Phase 3 development.

In Equinix's facility in Secaucus, N.J., for instance, the cooling vents in the first phase were located close to the ceiling. In subsequent phases, the vents were lowered just above the server cabinets to blast cool air directly into the racks. While the change may not seem like a huge technological advancement, it increases cooling efficiency, something that is extremely important in an operation where cooling and power comprise the No. 1 cost.

From a capital markets perspective, it also has been interesting to watch data centers transform from standard hosting and colocation operations to multibillion-dollar, multifaceted businesses. Today, data centers have evolved into liquidity centers, and they have become the focus for market participants across the world. These modern facilities offer the latest in data center technology and efficiency, while also providing the fastest access to exchange matching engines, dark pools and ATSs.

[Related Article: "Liquidity Centers Are the First Step Toward Industry Utilities"]

Traditionally, data center providers such as Equinix, Savvis and Telx offered server colocation space. As more and more market participants have chosen to locate at particular facilities, however, they have become liquidity destinations, with increasingly scarce rack space. But now the traditional data center providers are facing new competition -- from the exchanges.

NYSE Euronext in 2010 opened a 400,000-square-foot data center in Mahwah, N.J., and already has 76 percent occupancy for colocation services. Furthermore, by 2015, NYSE Technologies, the commercial technology arm of the exchange that runs part of the facility, aims to boost its revenues to $1 billion, a large portion of which will come from the company's liquidity centers (and the Capital Markets Community Cloud Platform, the financial industry cloud offering that is housed in NYSE's Mahwah facility). NYSE Technologies is about half way to its goal, ending 2010 with $475 million in revenue.

CME Group also is moving to capitalize on the liquidity center trend. As one of the world's leading derivatives marketplaces, it is opening a 428,000-square-foot liquidity center outside Chicago in Q1 2012. Similar to NYSE, CME Group says its facility will offer the lowest latency to its matching engines in addition to colocation and hosting space for its customers.

Where the liquidity center concept will lead is anyone's guess. But consider this: NYSE Euronext "future built" its massive New Jersey facility by including extra space that it would not need right away. And yet, less than one year into the life of the liquidity center, it's more than three-quarters full.