This from a 2007 article from Low Latency:
Firms are turning to electronic trading, in part because a 1-millisecond advantage in trading applications can be worth millions of dollars a year to a major brokerage firm. That is why colocation — in which firms move the systems running their algorithms as close to the exchanges as possible — is so popular.
The need for speed has opened up opportunities for nontraditional competitors in the space, and it has provided established exchanges with new revenue opportunities, such as colocation services for companies that wish to place their servers in direct physical proximity to the exchanges' systems. Electronic trading also has created opportunities for a new class of vendors — execution services firms and systems integrators promising the fastest possible transaction times….
Physical colocation eliminates the unavoidable time lags inherent in even the fastest wide area networks. Servers in shared data centers typically are connected via Gigabit Ethernet, with the ultrahigh-speed switching fabric called InfiniBand increasingly used for the same purpose, relates Yaron Haviv, CTO at Voltaire, a supplier of systems that Haviv contends can achieve latencies of less than 1 millionth of a second….
The NYSE will begin reducing its 10 data centers, including those associated with Euronext, to two in the next couple of years, says CTO Steve Rubinow. Colocation, Rubinow says, not only guarantees fast transactions but also predictable ones. "If you've got some trades going through at 10 milliseconds and some at 1 millisecond, that's a problem," he says. "Our customers don't like variance."
There's also this interesting tidbit about place and security:
Later this year, Nasdaq will shutter its data center in Trumbull, Conn., and move all operations to one opened last year in New Jersey, with a backup in the mid-Atlantic region, the exchange's Hyndman says. (Trading firms and exchanges are reluctant to disclose the exact locations of their data centers.)
So what's this mean for the future?
Once you hit physical limits to data-transmission speeds, where do you go from there?… There are two schools of thought on this issue. One is that traders, exchanges and brokers must shave latency from other parts of the system — in the applications they use, for instance — and that the race will continue.
The other is that latency will cease to be an issue once everyone has access to the same trading infrastructure and that other, older-school elements of the business, such as customer service and market savvy, will once again become the differentiators. "Shortly, we'll be talking micro- versus milliseconds, and at that point speed will probably have less and less relevance," says Lime Brokerage's [Alistair] Brown. "Once you've got half a dozen systems that can all handle that kind of throughput, then you have to distinguish yourself somewhere else."