In a world where milliseconds can mean millions of dollars gained or lost, co-location is one of the most important aspects of high frequency trading (HFT).
The closer your servers that process your trades are to an exchange like NYSE Euronext, the quicker the execution. So it makes perfect sense for an exchange like NASDAQ to get in the game. Previously, NASDAQ touted it was opening its own co-location business in northern New Jersey.
Nasdaq OMX, at a time of intense suspicion surrounding high-frequency trading practices, has consented to allow the Securities and Exchange Commission to regulate its co-location services.
“We have been asked by the SEC and consented to–indeed embraced–their regulation of our co-location business,” Eric Noll, a Nasdaq executive vice president in charge of transaction services, told Traders Magazine. “Their goal is to make sure that access to our marketplace is fair. That is also our goal.”
As part of the new regulation process, Nasdaq will submit any pricing changes to the SEC for approval, Noll said.
Do you think the NASDAQ is being serious when it says it has “embraced” regulation of co-location? Of course! All this means is that the practice will be formalized with rules that will make it harder for other exchanges to out-compete them.