Rental prices for server racks in data centers near the Shanghai Stock Exchange have surged following the exchange’s decision to shut down local area network market data feed access in favor of a wider area network connection.
An industry insider revealed that the monthly rent for a standard 4,000-watt rack at the SSE Jinqiao Data Center has increased to approximately CNY10,000 (USD1,480) from CNY7,000 (USD1,040). More troubling than the price hikes is a significant shortage of available inventory.
Some facilities have seen rack rental prices multiply several times, according to a staff member at a quantitative investment firm.
Quantitative funds depend heavily on data-driven strategies, such as specialized algorithms and models, for making investment decisions. To receive market data more quickly, some have rented server space directly within the exchange through brokers to gain a ‘speed advantage.’
Local area network connections are characterized by low latency and high stability, which benefits most quant trading strategies by providing a tangible speed edge compared to wider area network transmissions.
While the SSE utilized LAN, funds with servers inside the exchange could gather data and execute trades in microseconds. With the transition to WAN, these funds are now relocating closer to the exchange to preserve their ‘speed advantage.’
The SSE’s shift from LAN to WAN established standardized latency and governance requirements for market data access, which aims to promote fairness among market participants, according to a chief technology officer at a major Chinese brokerage.
Though quant funds can still lease server racks via securities brokers, regulations now prevent brokers from offering special treatment or leveraging exchange resources for select clients, thus eliminating the previous ‘speed advantage,’ the CTO explained.
Industry sources indicate that the move to WAN has a pronounced effect on T+0 trading, arbitrage activities, and ultra-high-frequency traders, whose strategies depend heavily on rapid market data transmission, despite representing a smaller portion of overall trading volume.
An official at an East China-based quant firm remarked that proximity to the SSE Jinqiao Data Center remains essential, as closer physical distance results in faster data transfer speeds.
Pricing for server racks is primarily based on power capacity, but location plays a crucial role in rental costs. Industry insiders note that premiums tend to increase as data centers are situated nearer to stock exchanges.