As the US markets grapple with a new regulatory scheme, European exchanges are coming to grips with the globalization of High Frequency Trading, which I’m finding is a mixed bag.
Focusing first on geography, a key problem is that European data centers are more spread out than their US counterparts. With regards to accessing liquidity, this presents a challenge for the physical links that make low-latency transactions possible. The geographical concerns are less challenging in the US, due to the geographic concentration of liquidity in and around New York. With the pending move of the NYSE Euronext matching engines to Basildon, UK, we are beginning to see a similar concentration of liquidity in and around London. However, the only true way around geographical obstacles is physical co-location at exchanges, which is happening on both continents and will continue to level the playing field in the HFT race.
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