London leads the way in terms of institutional and retail FX, and is the number 1 location for all things technological and financial, however the internet, the lifeblood of this industry, is one of the slowest in Europe and takes forever to connect new installations.
An often overlooked but vitally important aspect to consider when selecting a location from which to operate a retail FX brokerage is the quality of network connectivity.
Unlike many businesses, where a tardy connection speed may cause minor irritation due to slow delivery of email or slow downloading of applications, graphic-heavy designs or impede conference calls, the FX industry is completely dependent on connectivity as it is a hosted, online business in which the order execution is conducted via online infrastructure, thus the highest level of quality is vital when it comes to maintaining a fast and reliable connection to all aspects of trading infrastructure.
Whilst London leads the way in terms of its business environment, the presence of the world’s largest Tier 1 interbank FX liquidity providers including Citigroup, Barclays, HSBC, Goldman Sachs, Credit Suisse and Deutsche Bank, the most highly respected financial services regulatory authority in the world and the largest non-bank institutional FX liquidity providers in the world with their top-drawer standing, towering giants of the electronic trading world, the internet and its connectivity is quite simply below par.
Investment in offices in London rose to £8.2 billion in 2015, setting a new record by being significantly higher than the pre-financial crisis figure of £7.5 billion in 2007.
Presence in London is necessary for FX firms due to their need to maintain an FCA license, and for liquidity providers and prime brokerage companies due to the standing of London as the world’s institutional FX center, as well as proximity to important commercial partners, however this is an extremely technologically advanced industry and therefore offices in other, less expensive parts of the UK would suffice, and provide the same connectivity via Equinix LD4, as well as have access to the same commercial partners and enable executives to reach meetings in the City. This is absolutely valid and FinanceFeeds considers London to be the very best location for all things FX.
Indeed, the UK’s FX industry is not only completely London-centric, but is actually Square Mile and Canary Wharf-centric.
Considering the cost of rent, in some of the more prestigious streets in central London, rent averages £85 to £100 per square foot, making a 4,000 square foot office (about average for a medium sized FX firm) cost anything upwards of £340,000 per month.
This is at the very upper end of office rental when compared with all other world cities, including Hong Kong and Singapore, the difference is that in Hong Kong and Singapore, the internet works properly.
Good broadband is the lifeblood of the FX industry – London lags behind
London languishes in 26th place when it comes to broadband speed when compared with other European capitals including Dublin (!) and Berlin, which is really quite remarkable when considering that London is highly technologically advanced and has ultra modern infrastructure compared with creaking mainland Europe.
Aside from the slow broadband speed, which at best can create difficulties connecting to trading infrastructure and at worst assymetrical slippage and non-fills of orders if the retail broker is a white label partner and is relying on broadband for connectivity as white label partners and smaller MetaTrader 4 brokerages rarely have dedicated collocation connectivity on Equinix LD4, instead relying on their internet connection to connect to their customers and to their white label provider with whom the connection to the trading servers exists, there is another problem.
This problem is that when firms move into their premises, it has become quite commonplace that the broadband internet has not been connected.
Bureaucracy is one of the major impeding factors.
Broadband providers are often unable to quickly gain access to a building in London and establish new connections because often the actual connection needs permission from a landlord, and landlords of London offices are often vast commercial real estate enterprises with large processing departments for each function.
Agreeing permission to establish connections is often a long, drawn out affair.
In some cases, the bureaucracy is so intolerable that it can take over a year to resolve, with employees being unable to work from the offices, instead having to work from home. This would be completely impractical for an FX firm that relies on connectivity in order to provide a trading environment to customers.
The irritation here is that according to current legislation, installations can take this long because each new installation requires fresh negotiations and agreements, which are subject to the procedural internal methodology of large property management firms.
Mark Boleat, Chairman of the Policy and Resources committee of the City of London has recently made some steps toward resolving this matter by establishing a group of broadband operators, landlords, developers and industry professionals to generate a toolkit which can be used by all parties wanting to install broadband infrastructure.
Mr. Boleat regards good quality internet to be vital to the City’s business environment, placing it on a par with energy and water. Therefore, whilst it is a good thing that the government is looking at resolving this matter, it is certainly a very vital consideration for all firms in this industry.