Opinion ID: 6105520
Heading Depth: 2
Heading Rank: 2

Heading: The Modern Securities Market

Text: Securities exchanges, and the market for securities, have undergone a sea change since passage of the Exchange Act in 1934. Once non-profit and member-owned, exchanges now are mostly for-profit companies. Trading is overwhelmingly automated and electronic; the once iconic trading floor has gone the way of the nickel beer. Exchanges now rely upon highly sophisticated technologies and matching algorithms to perform core functions, such as matching buy and sell orders, while brokers and traders rely upon lightning-fast technology to generate, route, and execute orders. 5 As the market for securities has evolved, speed has become increasingly important to sophisticated and successful securities trading strategies, as vividly recounted in the popular book “Flash Boys” by Michael Lewis. Speed here is measured in microseconds (millionths of a second) and nanoseconds (billionths of a second). These miniscule fractions of a second — utterly meaningless virtually everywhere else — can make all the difference when it comes to receiving market data and completing a profitable transaction. See Market Data Infrastructure, 85 Fed. Reg. 16726, 16728 (proposed Mar. 24, 2020) (“Today, the U.S. equity markets have evolved into highspeed, latency-sensitive electronic markets where . . . even small degrees of latency affect trading strategies. Sophisticated order routing algorithms dependent on low-latency, highquality market information are widely used to execute securities transactions.”). It should come as no surprise, then, that sophisticated market participants continually seek to reduce the latency in their transmissions. The array of services a modern securities exchange offers to market participants reflects these realities. Among them is colocation. A market participant rents rack space and places its servers in physical proximity to an exchange’s matching engine or its proprietary market-data feed. The idea is simple: the closer a trader or broker’s equipment is to a market-data feed, the sooner it can receive market data and then act upon it; and the closer this equipment is to a matching engine, the faster an order can be routed to that matching engine. Exchanges also charge for access to proprietary market-data feeds and for various connectivity services, such as access to local networks that connect to matching engines. 6