Burgundy's Conflict with Verizon Shows No Signs of Abatement

Verizon Business has responded to Burgundy’s complaint to the Swedish Competition Authority that it acted unfairly in refusing to co-locate the Burgundy matching engines at its Stockholm data centre with a distinct ‘no comment’.

The company’s refusal to comment sheds no light on its actions, but one suggestion is that it may be under pressure from the larger Nasdaq OMX Nordics exchange, which is already co-located at Verizon, to exclude rival liquidity venues from the premises, meaning it won’t budge unless required to by the regulatory authority. In the meantime and awaiting the outcome of its complaint, which is likely to take months, Burgundy is co-locating at an Interxion data centre outside Stockholm that hosts far fewer customers and potential customers than the Verizon site (see our coverage here).

Burgundy’s complaint is based on Verizon’s sudden and unexplained decision to stop work on installing the multilateral trading facility’s (MTF) matching engines at its Lunda data centre on the outskirts of Stockholm, despite a contract covering co-location having being signed between Verizon and Burgundy’s technology provider Cinnober in September 2010. Burgundy complains Verizon’s actions are anti-competitive and says it will quantify any resulting loss of business income at a later stage in the complaints’ procedure. The Swedish Competition Authority has the power to fine companies that are found to breach regulations governing anti-competitive business practices.

Olof Neiglick, CEO of Burgundy, explains: “There is one dominant data centre in Sweden and that is operated by Verizon. It handles 50% of incoming trade volume and most of the banks have kit installed there for co-location or proximity services. We asked our clients early this summer if they would like Burgundy to move to Lunda and they said yes because they could trade on Burgundy and the main exchange at the data centre.”

Neiglick says work started on the transition to Verizon soon after this, with the contract between Cinnober and Verizon signed in September 2010 ahead of Burgundy writing to its clients on October 4 to notify them of the move to Lunda. Handover was due on November 1 with testing through the month.

Just days before handover, Neiglick says Cinnober received an email saying Verizon was unable to deliver on the contract as it was not in line with policy at Lunda. When asked ‘what policy’, Verizon did not answer. Burgundy says it has found no evidence that the 30 to 40 banks and brokers co-located at Lunda have been informed of any policy when installing kit over the past couple of years.

“We do not have a clue why Verizon has done this. There is plenty of space and power at the data centre, we had started to build our space and we had rack numbers. Verizon’s technicians and ours were talking in detail,” says Neiglick. “The authorities will investigate. It is very serious when a supplier fiddles with the infrastructure for stock broking. We were planning to move to Lunda to improve cost efficiency and latency for our customers and prospects. Now they may not be able to prove best execution of trades.”

With most of its customers at Lunda, Burgundy’s hopes of being under the same roof have been dashed and it will move its matching engines to Interxion’s Kista data centre that is about 5 kilometres from the Verizon centre, a journey that incurs latency of about 50 microseconds one way. The MTF already has a contract with Interxion, which runs its secondary engines at the Kista centre. As Burgundy redirects the servers and routers ordered for the Verizon data centre to Interxion ready for go live in March 2011, Neiglick says: “We are very concerned about the move to Interxion, but we cannot wait for the outcome of our complaint to the authority.”

To date, Verizon has said no more than it ‘does not comment on actual or potential legal matters or customer relationships’.

On the basis that one company’s loss is another’s gain, Interxion will no doubt be keen to capitalise on Burgundy’s problems with Verizon. The company promotes itself as a carrier neutral co-location data centre services provider and while the Burgundy community at the Kista data centre is smaller than that at Verizon, mainly because Verizon hosts Nasdaq OMX Nordics, it expects some Burgundy clients to move to Interxion while others will put equipment in both companies’ data centres. Interxion claims its flexible model, which provides only data centre services with connectivity choices provided by partners, offers exceptional service levels, competitive pricing and a customer retention rate of about 95%. Great marketing material, but not quite the solution Burgundy had been looking for.