the stock exchanges recognize this value and provide co-location etc to enable it
Not true. The exchanges charge hefty fees to colo in their datacentre. What you do with it is completely up to you. It's just more revenue as far as the exchange is concerned.
why are so many stock exchanges closed for half to two thirds of the day
In practice, this doesn't matter. When NYC closes, trading moves to Tokyo, then onto London, then back to NYC. Anything you want to trade, you can do so 24 hrs a day if you really want to.