``` The Major CME Trading System Crash: Core Financial Infrastructure Outsourced Amid Private Fund Boom ```
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The key infrastructure of global financial markets is unexpectedly fragile.
According to Wallstreetcn on Friday, a cooling system failure occurred at the CyrusOne data center in Aurora, Illinois, causing almost all futures and options trading platforms of the Chicago Mercantile Exchange (CME) to collapse, resulting in severe disruptions for traders around the world.
This data center originally belonged to CME, but was sold to CyrusOne in 2016 with CME continuing to lease it for 15 years, essentially outsourcing its daily operations. According to an estimate in 2018, at least $2.5 quadrillion in nominal daily trading volume is processed through the facility.
CyrusOne stated its team is working “around the clock” to address the cooling system issues, but the cause of the failure is still unknown. Some analysts believe it may be due to a system design flaw.
According to reports citing insiders, CME has a disaster recovery data center in the New York area, but ultimately chose to restart its trading systems in Aurora. The insider said the reason for this decision was that CME had information at the time indicating the cooling issue would be resolved more quickly than it actually was.
This incident not only exposed the operational risks of a single physical site, but also drew attention to the owners of this key asset—private equity firms that have in recent years made significant moves into the sector.
The "Nerve Center" of Global Trading
About a 45-minute drive west from downtown Chicago sits an unassuming glass-paneled data center, yet it is relied upon by some of the world’s largest markets.
Since CME established the facility in 2009 to house its electronic trading infrastructure, the 450,000-square-foot building has become its primary digital operations center for nearly two decades.
The facility is well known among Wall Street firms and high-frequency traders, who have long paid handsomely for prime locations around it to reduce trading latency by microseconds.
DRW Holdings once set up antennas on a nearby utility pole, while rival Jump Trading bought property across the street to build its own antenna tower. As a former executive at the data center put it:
If you’ve read the book “Flash Boys,” you’ll quickly understand what’s happening here.
The Calculus and Risks of Outsourcing
This critical infrastructure for global markets was originally built and owned by CME itself.
But in 2016, CME decided to divest ownership of the infrastructure and sold the data center to CyrusOne.
As part of the deal, CME agreed to lease space from CyrusOne for 15 years, continuing to house the computers that keep the markets running there, effectively outsourcing its daily operations.
CyrusOne fully understands its value. Then-CEO Gary Wojtaszek once described the data center to analysts as the “ground zero” of high-speed trading and “the center of all futures trading.”
According to Tobias Bopp, a manager at consulting firm EY-Parthenon, CyrusOne’s business model is to attract large clients like CME who effectively lease out almost the whole data center.
Lauren Eccles, a senior principal consultant at First Point Group specializing in data center recruitment, also described CyrusOne as “one of the big players in the industry” with a strong reputation.
Private Equity Frenzy and Questions About Redundancy Design
In 2021, as the artificial intelligence boom drove soaring demand for data centers, CyrusOne’s reputation caught the attention of private equity firms.
KKR & Co. and Global Infrastructure Partners (GIP) agreed to acquire CyrusOne for about $11.4 billion. At the time, this deal was seen as an example of private equity investors seeking to profit from tech giants’ surging computing needs.
For GIP, this was neither its only nor largest data center deal.
This year, after BlackRock acquired GIP, GIP agreed to buy Aligned Data Centers for $40 billion, making it one of the parent company’s largest infrastructure investments ever.
This cooling system failure has sparked external questions about its design. According to the CyrusOne website, the data center is equipped with additional cooling units to prevent such failures.
Thomas Solelhac, a partner at EY-Parthenon, said the cooling failure may suggest a design flaw in the system. He noted:
Normally, this type of data center is heavily over-designed with redundancy to avoid exactly these kinds of power and cooling issues.
Disaster Recovery Plans and the Unfulfilled “Plan B”
It is not yet clear whether, after the cooling equipment failure this week, CyrusOne attempted to migrate CME’s operations from Aurora to another data center.
Meanwhile, although CME’s disaster recovery plan calls for operations to switch to a data center in the New York area, the exchange ultimately chose to restore service in Aurora. Reports say this was based on information at the time suggesting the cooling problem would be resolved quickly.
Ironically, when CME struck its deal with CyrusOne in 2016, it had hoped to gain access to more computing resources.
That year, opposing an Illinois state legislative proposal to tax exchange trading, then CME executive chairman and current CEO Terry Duffy said the deal with CyrusOne would enable access to data centers beyond just the one in Aurora.
He said at the time:
If we ever need to leave Illinois due to any irrational decisions by state government, we have 29 data centers to choose from.
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