1. Time to market exceeding 72 hours
A recent audit of a trading desk at a tier 1 institution indicated a 44 day turn up period for each new client connection, as a result of approval, procurement and networking obstacles. The desk’s smallest client generated $1000 of revenue a day. That’s $44,000 of lost revenue per client.
2. Flat-rate Bandwidth
Capacity on long-haul fibers remains 91% unused. Yet businesses provision and pay for 100% of the bandwidth contracted for. This represents over-spending by a factor of 10.
3. Inactive connections
The same audit of the tier 1 institution desk revealed that 30% of its connections were completely inactive. Yet these connections still resulted in monthly recurring fees for zero revenue. Without accurately identifying costs on a per-client connection basis, margins don’t increase-yet spreads on assets continue to decline.
4. Lacking oversight of network connectivity
The complexity of networks, particularly in large institutions, makes it difficult to accurately identify the number and destinations of network connections. When new trading opportunities arise, existing infrastructures cannot always be isolated, resulting in delays to time to market, and potential duplication of connectivity costs.
5. Running compute facilities that are older than 18 months
In accordance with Moore’s Law, compute power doubles every 18 months, resulting in faster processing times at half of the cost. Yet average business depreciation ranges between 3-5 years, indicating businesses are running half as efficiently at double the cost, when compared to competitors who regularly upgrade their facilities.
6. Managing hundreds of IP points and security vulnerabilities
Traditional network management involves hundreds of IP points to connect to financial venues-each one of these points opens a network to attack. Identifying, isolating and stopping an attack in real time requires significant resources and network scrutiny.
7. Prioritizing yearly IT budgets around traditional assets and strategies
Every savvy investor hedges their portfolio risk, particularly when annual IT budgets are prioritized and forced into long-term contracts. Yet as spreads in traditional markets decrease, more and more traders are looking to higher volatility assets for revenue. The costs and risks involved in traditional entry into new markets can mean not enough budget is available to allocate to these ventures. Executing on opportunities becomes financially unfeasible.
8. Building out new space in data centers
Low latency requirements demand that businesses be co-located in the same data centers as the institutions they want to connect to are. As markets shift and demand increases beyond American and European financial epicenters, building and maintaining a latency advantage requires huge capital and labor expenditures and long term investments, in order to set up, establish and maintain connectivity in new data centers globally.
9. Calling your IT department to spin up each new connection and engaging in network peering
When an opportunity exists, you want to connect to it. Instead, most businesses are calling their IT department (after they’ve received approval), who subsequently liaise with the destination institution’s IT department, in order to begin setting up a connection. Effective trading infrastructure should facilitate the trades you want to execute-not stall them.
10. Signing long term contracts. Period.
Long term contracts represent long term costs and commitments-yet revenue is never guaranteed. The services you pay for should reflect the market you participate it, not increase in cost as revenue and profitability decrease.
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