For high-frequency traders, the most desirable London location seems to be on top of LSEG’s data centre in the Docklands, where the FCA is investigating whether low latency connectivity services (LLCS) are getting fair access to the exchange.
Currently, only LSEG can access the building’s rooftop and house low latency connectivity services’ (LLCS) radio equipment there. The exchange uses its own Exchange Wireless Service (EWS).
As other LLCSs cannot install their equipment on the data centre’s roof, providers’ radio units are at a greater distance from the LSE. The FCA has questioned whether this restriction on providers has impacted competition between third-party LLCS connecting the LSE to Cboe Europe’s data centre in Slough and the ICE data centre in Basildon.
LSEG insists that its own EWS services gain no latency advantages from location.
“The market for LLCS is competitive, and customers can choose between various low latency providers. LSEG provides LLCS via its EWS and is committed to providing a resilient service to its customers, investing throughout its routes to provide a secure, robust and valued service,” it stated.
“Given the amount of time and resources from all parties in reviewing a minor aspect of LLCS, LSEG has offered commitments to reassure the FCA that there is no basis for the potential concerns under investigation on a forward-looking basis, so as to conclude the process.”
However, the FCA warns that non-EWS LLCS providers could be burdened with significant additional costs in their route constructions and limited route designs as a result of the rooftop lockdown. Additionally, EWS faces little incentive to improve its latency as the competitive landscape is muted.
The FCA has not reached a conclusion on whether competition law has been broken, but commented: “At this stage, the FCA provisionally considers that LSEG’s conduct is not objectively justified.”
High-frequency traders (HFTs) and market makers are particularly impacted by the issue, the FCA highlighted. The former rely on speed to exploit minute differences in instrument prices, while the latter need up-to-date data to minimise those arbitrage opportunities.
LLCS providers McKay Brothers Communications and New Line Networks (owned by Jump Trading and Virtu Financial) also have connections established on the ICE-LSE route. Neither have commented on the situation.
LSEG and the landlord of the data centre building have proposed ending LSEG’s exclusive rights to the rooftop, and introducing a space for third parties equal to that of their own.
A consultation on the proposal is running until 29 September.
