Summary of Key Points
The Shanghai and Shenzhen stock exchanges are gradually transitioning the method of accessing trading data from local area networks (LANs) to wide area networks (WANs). This change has led to a frantic competition among institutions to rent data centers located near the exchanges, as faster data transmission over WANs results in lower latency. As a result, rental prices for these data centers have risen, and it has become extremely difficult to secure space. Additionally, servers previously housed in the exchange-owned data centers must be moved out by September or October, forcing institutions to quickly find new locations, which has further exacerbated the shortage of available data center space.
I. Switching of Communication Networks at the Shanghai and Shenzhen Exchanges
- Shanghai Stock Exchange: The transition was completed on July 31st, with both trading and data access systems moving from LANs to WANs. Back in March, the exchange announced that the LANs for trading would be shut down by the end of June, and those for data access by the end of July; all conversions have now been finished.
- Shenzhen Stock Exchange: The transition has not yet taken place, but industry sources indicate it is scheduled for this week (around August 7th). The exchange has communicated this change via telephone calls to brokerages and has requested their cooperation in testing the new network infrastructure to ensure that latency requirements are met (i.e., a round-trip data transmission time of no more than 2 milliseconds).
II. Why Do Institutions Compete for Data Centers Near the Exchanges?
A mere few milliseconds can make a huge difference in trading outcomes. Previously, institutions had to place their equipment in the exchange-owned data centers to access trading data. With the switch to WANs, although they no longer need to do so, the closer the data center is to the exchange, the faster the data transmission (referred to as lower latency). For example, in quantitative trading, where computers automatically place orders quickly, a 1-millisecond difference could result in missing the best pricing opportunity or even in significant losses. The Shenzhen Stock Exchange has explicitly required that network latency meet the 2-millisecond standard, making data centers near the exchange highly sought after.
III. Current Situation of the Data Center Competition
- Near the Shanghai Stock Exchange: Availability of data center space is already extremely limited, and rental prices have risen significantly.
- Near the Shenzhen Stock Exchange: Although the switch has not yet occurred, there is already a shortage of available data centers. Institutions are renting spaces in advance to avoid waiting until after the transition, which is driving up rental costs.
IV. Deadline for Moving Servers
- Shanghai Stock Exchange: All servers must be moved out by the end of September.
- Shenzhen Stock Exchange: Servers must be moved out by the beginning of October.
Institutions are rushing to relocate their servers to newly rented data centers, which is a major factor contributing to the current shortage of data center space.
V. Implications for Institutions
- Increased Costs: Data centers near the exchanges are more expensive, resulting in higher rental expenses.
- Time Pressure: There is only 1-2 months left to complete the relocation process, so institutions must quickly find and move their servers.
- Technical Adjustments: They need to replace the existing LAN infrastructure with WAN systems and ensure that latency requirements are met; otherwise, trading operations could be affected.
In summary, this network transition represents a forced upgrade for institutions. While it comes at an additional cost and requires significant effort, the need for faster data transmission means they have no choice but to compete for data centers located near the exchanges.