Ask a fund manager about co-location and you'll get one of two reactions: a confident nod from someone who genuinely understands it, or a slightly glazed look followed by a topic change. Co-location sits at that uncomfortable intersection of technology infrastructure and regulatory governance — and that intersection is where disclosure obligations quietly pile up unseen.

The direct answer is this: if your fund uses co-located servers on ASX or Chi-X to gain latency advantages, that arrangement almost certainly creates a conflict-of-interest disclosure obligation under ASIC's RG 181. Most fund managers either don't know this or assume their compliance team has it covered. Often, neither is true.

CONCEPTCo-location is a legitimate execution tool — but proximity to exchange matching engines creates information and speed asymmetries that regulators treat as material conflicts.
WARNINGFailing to disclose co-location arrangements in your FSG or conflict register isn't a technicality — ASIC views it as a breach of your duty to clients under RG 181.
KEY IDEAProprietary trading desks and client-facing funds sharing the same co-located infrastructure are the highest-risk scenario regulators scrutinise first.

Think of co-location like renting a lane in the fast lane of a toll road — except you're also the one deciding which lanes your clients' orders travel in. The speed advantage is real. ASX's co-location facility at its primary data centre lets participants place servers physically close to the matching engine, cutting round-trip latency to microseconds. Chi-X operates similarly. That advantage is worth paying for. But it immediately raises the question: whose orders get priority routing?

Latency: Co-located vs Standard Access500μs300μs100μs0Co-locatedStandardASXChi-X

RG 181 requires AFS licensees to identify, manage, and disclose conflicts that arise from their business arrangements — and the guidance is explicit that technological advantages count. A fund running a co-located proprietary desk alongside a client portfolio must demonstrate in its conflict register that order routing decisions don't systematically favour the house. The FSG needs to acknowledge the arrangement exists. Most don't. That's the gap regulators walk straight through during surveillances. For deeper reading on the mechanics, Investopedia's co-location explainer covers the infrastructure basics clearly, while Wikipedia's high-frequency trading article contextualises why regulators globally treat latency asymmetry as a governance issue. ASIC's own framework on conflicts draws heavily from conflict-of-interest principles that apply well beyond finance.

The practical takeaway is straightforward: pull your conflict register and FSG today, search for any mention of co-location or execution infrastructure, and if the page comes up blank, that's your next compliance project.

Speed is not the problem — silence is. Disclose the arrangement, document the controls, and the regulator has nothing to chase.

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