Nasdaq's Shift to Cloud Commits to New Jersey, Avoiding Big Trader Hassle

(Bloomberg) -- In modern trading, where billionths of a second matter, knowing where exchanges stash their computers is crucial.

So when Nasdaq Inc. recently decided to start shifting its North American markets to the cloud, that raised the possibility traders would have a harder time sorting where to put their machines, and also force them to reroute wireless communications networks that serve as the backbone of finance. That’s because cloud platforms usually are based out of multiple data centers.

Nasdaq is dispelling those worries. On Wednesday, the company is set to announce a multiyear deal that keeps the exchange operating out of the same Equinix Inc. data center in Carteret, New Jersey, where the machines running its markets have been housed for more than a decade.

Equinix is modernizing the facility and agreed to provide more space to let Nasdaq clients grow their footprint within Carteret, executives told Bloomberg. It’s also allowing Amazon Web Services to implement its cloud infrastructure in the space. Financial terms of the deal weren’t disclosed.

“Carteret is not just a center of gravity for Nasdaq’s transaction services,” Tal Cohen, executive vice president and head of North American markets at New York-based Nasdaq, said in an interview. “Now it’s an ecosystem for capital markets that is more robust and resilient than what otherwise existed.”

U.S. stock trading mostly takes place in a trio of New Jersey data centers, including the Equinix facility where Nasdaq exchanges are run. Meanwhile, the country’s main derivatives exchange, CME Group Inc., operates in a building just outside Chicago. Much of 21st century finance depends on traders telling a computer in one of those data centers – or others around the world – to buy or sell after noticing prices have moved in another data center.

That’s led major trading firms including Jump Trading Group, DRW and Virtu Financial Inc. as well as telecom companies like McKay Brothers to spend the past decade constructing wireless networks -- using microwaves and other radio frequencies -- to fling instructions to buy or sell between those buildings at close to the universal speed limit: the speed of light.

A typical cloud partnership – with the computing done in many data centers, not a single one – could upend that, since it would be much harder for traders to build wireless networks stitching all that infrastructure together. Staying in the Equinix data center in Carteret eliminates that threat, at least as it relates to Nasdaq’s exchanges.

CME also struck a cloud deal recently, with plans to migrate to Google Cloud. But moving its trading systems -- currently housed in a CyrusOne Inc. data center in Aurora, Illinois -- appears years away. Nasdaq is shifting beginning in 2022 with one of its options exchanges.

“The migration to the cloud doesn’t change the need for the infrastructure to be positioned near existing partners,” Jon Lin, president of Americas at Equinix, said in an interview.

Cloud computing allows companies to outsource computer processing and data storage to big tech firms rather than operating the systems in-house. “Cloud is using data centers like ours. It needs to live somewhere,” Lin added. “Our job is to make sure we’re providing the infrastructure that underlays and supports Nasdaq’s growth and the entire trading economy.” 

While transferring capital markets to cloud-based platforms could help exchanges reduce costs and has been held up as a remote goal for years, the technology challenges are enormous. The aim is to “mitigate disruption, offer choice and ensure that performance is as good, if not better, as we move along the migration to the cloud,” Nasdaq’s Cohen said.