Published On: Mon, Jun 13th, 2011

TSE Colocation Trading Growing Rapidly

The Tokyo Stock Exchange (TSE) launched their colocation service January 4, 2010 the same day Arrowhead went live. Since then, trading volumes within that colocation facility have grown by more than 300%. A peak of 43% of the TSE’s daily volume changed hands within the colo those first few days following the earthquake in Japan. All time records for the exchange were made on March 15th where total volume was 5.95 billion shares and March 16th 22.08 million orders were received. The TSE can accept 46 million orders per day.

While it is not clear how much of this is buy side High Frequency Trading (HFT) and how much is sell side algo slices the earthquake spike indicates that volatility was being sought after lending itself to a much larger percentage of HFT. Post-quake, colo orders on the TSE have steadied to around 33%. The exchange expects volumes at the colo to increase to 50% of average daily volume (ADV) over time.

TSE Colocation

Building on the TSEs low latency foot print, in May 2012 the exchange is expecting to further reduce round trip response latency to less than 1 millisecond (currently 2 milliseconds). That is when an order, amend or cancellation is received at the exchange gateway is sent to the matching engine then back to the gateway.

Currently, messages from customer racks to the gateway average 32 microseconds.

Also, the futures segment is expected to be migrated to the Tdex+ platform in November 2011 reducing latency to below 10 milliseconds. While not record breaking this improvement in speed will further boost colo volumes as index arbitrage, among other trading strategies, gains traction.

Competitor colo service providers are not allowed into the colo facility at this time and it is not known if they will be.

Some further details of the Tokyo Stock Exchanges service is as follows:

• Power Supply: 1 Cable of 100V 20A per rack is provided without charge
• Cooling: 4KVA per 1 rack cabinet
• Rack Specification: 19 inch rack cabinet conforming to EIA standard
• Dimensions: W800 x D1100 x H2200(45 rack units are available per rack)
• External Connection: Connection between Co-Location Area and user site outside of Co-Location Area is available via Access Point.
• Ethernet dedicated line and other types of lines available.

Full racks cost 750,000 JPY per rack. Half rack option is available and the service desk operates 24 hours a day and 365 days a year.

The TSE also introduced proximity service October 25, 2010.Rack fees are JPY400,000, roughly half those of the colocation service and expected latency is around 392 microseconds.

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