When Savvis promises “proximity hosting,” they mean it – according to this New York Times Magazine article. In Weehawken, New Jersey, right outside of the Lincoln Tunnel, there’s a data center that houses the Philadelphia Stock Exchange’s computers. (The PSE is now part of Nasdaq.) Firms compete to have their computers located close – physically and in the networking sense – to the trading exchanges in that data center. Milliseconds of latency are unacceptable in this environment.

“It used to be that things were done in seconds, then milliseconds,” Varghese Thomas, Savvis’s vice president of financial markets, told me. Intervening steps — going through a consolidated ticker vendor like Thomson Reuters— added 150 to 500 milliseconds to the time it takes for information to be exchanged. “These firms said, ‘I can eliminate that latency much further by connecting to the exchanges directly,’ ” Thomas explained. Firms initially linked from their own centers, but that added precious fractions of milliseconds. So they moved into the data center itself. “If you’re in the facility, you’re eliminating that wire.” The specter of infinitesimal delay is why, when the Philadelphia Stock Exchange, the nation’s oldest, upgraded its trading platform in 2006, it decided to locate the bulk of its trading engines 80 miles — and three milliseconds — from Philadelphia, and into NJ2 [in Weehawken, NJ], where, as Thomas notes, the time to communicate between servers is down to a millionth of a second. (Latency concerns are not limited to Wall Street; it is estimated that a 100-millisecond delay reduces Amazon’s sales by 1 percent.)

Back in March 2008, electronic trading made up 60-70 percent of the daily volume of the NYSE. (I’m sorry I don’t have more recent numbers, but they might have been artificially affected by the credit crisis anyway.) And when you remove human beings from trades; the only thing that matters is the speed of a sale; whichever seller’s computer connects first to the buyer makes the sale, whichever buyer connects to the low-bidding seller first gets the bargain. Speed, while not everything, is not underestimated – and it’s one of the reasons you need to identify immediately any problems with network performance in financial applications. Every second a problem doesn’t get fixed – even problems that are imperceptable to the end user, like an added 3ms of delay - means more money is lost.

Now, if your company is over-leveraged and built on shaky investments, network performance won’t save you – we’ve seen a lot of companies with very good network infrastructures go downhill these past few months.

If you want to learn more about the topic of monitoring trading applications for performance, you might want to check out Alex Malone, Software Engineer Manager at NetQoS, who will be speaking at the Securities Industry and Financial Markets Association Technology Management Conference & Exhibit on June 23-25 in NYC. Alex is scheduled to speak June 24, at 2:35pm. You can also look us up at booth #1822.