(Yicai) Aug. 5 -- Rental prices for server racks in data centers close to the Shanghai Stock Exchange have jumped after the bourse shut down its local-area-network market data feed access to fully embrace a wide-area-network one.

“Around the SSE Jinqiao Data Center, monthly rent fees for a standard 4,000-watt rack have soared to around CNY10,000 (USD1,480) from CNY7,000 (USD1,040),” a data center leasing market insider told Yicai, adding that what is more concerning than rising prices is the inventory shortage.

“Rack rental prices at some facilities have increased by several folds,” a staffer at a quantitative fund said to Yicai.

Quant funds rely on data-driven methods, such as mathematical models and algorithms, for their investment decisions. In order to receive data from the SSE faster, some of them rented server racks directly inside the exchange from brokers, gaining a so-called ‘speed advantage.’

LAN features low latency and high stability, which benefit most quantitative trading strategies, delivering tangible speed advantages compared with WAN transmission.

When the SSE was using LAN, the quant funds with servers inside the exchange could collect data and execute orders faster, as the data latency was in the microsecond range. But with the introduction of WAN, the quant funds were asked to relocate and are now trying to remain as close as possible to the exchange to maintain their ‘speed advantage.’

By switching from LAN to WAN, the SSE introduced unified latency and governance requirements for market data access links, which can improve trading fairness among market participants, the chief technology officer of a large Chinese brokerage company told Yicai.

While quant funds can still lease racks through securities brokers, under the new regulations, brokers cannot leverage resources within the exchange to grant special treatment to some clients, eliminating the ‘speed advantage,’ the CTO noted.

“The switch to WAN exerts greater impact on T+0, arbitrage, and ultra-high-frequency traders, whose strategies rely heavily on high-speed market data transmission, even though they account for a relatively modest actual trading volumes,” an industry insider told Yicai.

“Renting space near the SSE Jinqiao Data Center is all about physical proximity to the exchange, as a shorter distance translates into faster data transmission,” an official at an East China-based quant fund told Yicai.

Rack quotations are mainly determined by power capacity, but geographic location also highly impacts rental costs, a data center leasing industry insider told Yicai, adding that premiums rise the closer a data center is to stock exchanges.

Editors: Tang Shihua, Futura Costaglione