The collapse of the trading system of the Shenzhen Stock Exchange: Financial core infrastructure outsourced under the private equity boom

The key infrastructure of global financial markets is surprisingly fragile. On Friday, a cooling system failure at the CyrusOne data center in Aurora, Illinois, caused almost all futures and options trading platforms at the Chicago Mercantile Exchange to be paralyzed, causing serious disruption to traders around the world. Originally owned by the CME Group, the data center was sold to CyrusOne in 2016 and leased back for 15 years, essentially outsourcing its daily operations. According to a 2018 estimate, at least $25 trillion in nominal trading volume is processed through the facility every day. CyrusOne stated that its team is working "day and night" to address the cooling system issues, but the cause of the failure is still unclear, with analysis suggesting a potential system design flaw. Reports citing sources revealed that the CME Group has a disaster recovery data center in the New York area, but the exchange ultimately chose to restart its trading system in Aurora. The decision was reportedly made because the information at the time indicated that the cooling issue would be resolved faster there. The incident not only exposed the operational risks of a single physical site but also drew attention to the owners of key assets such as data centers - private equity firms that have been heavily investing in the field in recent years. "The Nerve Center of Global Trading" About 45 minutes west of downtown Chicago is a seemingly inconspicuous glass curtain wall data center that is crucial to some of the world's largest markets. Since the CME Group established the facility in 2009 to host its electronic trading infrastructure, the 450,000-square-foot building has become its main digital operations center for nearly two decades. The facility is well known among Wall Street firms and high-frequency traders, who have spent a fortune around the center to secure advantageous positions in order to shorten microsecond trading delays. DRW Holdings once installed antennas on a nearby power line pole, while their competitor Jump Trading bought property across the street to build a tower. As a former senior executive of the data center said: If you've read the book "Flash Boys," you'll quickly understand what's happening here. Outsourcing Calculations and Risks This infrastructure that is critical to global markets was originally built and owned by the CME Group. But in 2016, the CME Group decided to divest ownership of the infrastructure, selling the data center to CyrusOne. As part of the deal, the CME Group agreed to lease space in the data center to CyrusOne for 15 years, continuing to store the computer equipment that maintains market operations there, essentially outsourcing its daily operations. CyrusOne is well aware of its value, with CEO Gary Wojtaszek describing the data center as the "epicenter" of high-speed trading and "the heart of all futures trading." According to Tobias Bopp, a manager at the consulting firm EY-Booz Allen, CyrusOne's business model is to attract large clients like the CME Group that lease almost the entire data center space. Lauren Eccles, a senior chief advisor at First Point Group specializing in data center recruitment, also referred to CyrusOne as "one of the big players in the industry" with a good reputation. Private Equity Boom and Redundancy Design Questions In 2021, as the artificial intelligence boom drove demand for data centers, CyrusOne's reputation attracted the attention of private equity firms. KKR & Co. and Global Infrastructure Partners (GIP) agreed to acquire CyrusOne for around $11.4 billion. This deal was seen at the time as an example of private equity investors seeking to profit from the surge in computing demand from tech giants. For data centers, this was not GIP's only or largest deal. After BlackRock acquired GIP, GIP agreed to acquire Aligned Data Centers for $40 billion, making it one of the largest infrastructure investments in its parent company's history. The cooling system failure raised questions about its design. According to the CyrusOne website, the data center is equipped with additional cooling units to prevent failures. Thomas Solelhac, a partner at EY-Booz Allen, suggested that a cooling failure may indicate a design problem with the system. He pointed out, "Typically, these data centers have a lot of redundancy designed to avoid these kinds of problems with power and cooling." Disaster Recovery Plans and Unfinished "Plan B" It is not yet clear whether CyrusOne attempted to move the CME Group's operations from Aurora to another data center after the cooling device failed this week. At the same time, while the CME Group's disaster recovery plan called for operations to be relocated to a data center in the New York area, the exchange ultimately chose to restart services in Aurora. The decision was reportedly based on the information available at the time, indicating that the cooling issue would be resolved quickly. Ironically, when the CME Group struck a deal with CyrusOne in 2016, they were hoping to get more computing resources. That year, in opposing Illinois lawmakers' proposal to tax exchange transactions, then-CME Group Executive Chairman and current CEO Terry Duffy said that the deal with CyrusOne would allow them to use other data centers owned by CyrusOne, not just in Aurora. He said at the time, "If we need to leave Illinois because of any irrational decision by the state government, we have 29 data centers to choose from." This article is reprinted from "Wall Street See News," written by Bai Yilong; GMTEight edited by Xu Wenqiang.