Welcome to the extremely lucrative (and secretive) world of ‘high-frequency trading’ (HFT)
Victor Romain – correspondent
In the Daily Telegraph, there is an excellent article, written by Alan Tovey on a book review entitled, “Flash Boys,” by Michael Lewis, which reminded me of a TED Talk video I had once watched on how the Internet is changing the world of financial dealings and how high frequency traders are willing to go to extraordinary lengths to gain this speed advantage. The TED Talk was all about a length of fibre optic cable which was being laid – except that this, of course, was no ordinary piece of fibre optic cable, which was being laid and the distance to be covered, was not just a few meters in an office building – no… this was something quite extraordinary indeed, as was the distance and end-to-end locations involved, between the two points of contact.
This continuous piece of fibre optic cable, which was being laid was going to galvanise the speed at which trades are made into the warp-like speeds of mere milliseconds – faster than the speed of the blink of an eye.
It was the laying of a fibre optic cable – laying it at the shortest, and, therefore, straightest, possible fibre-optic cable between the Chicago exchange the New York exchange based in New Jersey, a distance of 827 miles.
The company involved was “Spread Networks,” who specialise in ultra-high-speed financial inter-trading connectivity. Their website states, “Spread Networks literally forged a new path to reduce the distance from New York to Chicago to 825 fibre miles including slack coils – the straightest and shortest route possible.” [ÐÐ°Ð´Ð¿Ð¸ÑÑŒ: Spread Networks map of their ultra-high-speed, shortest route, end-to-end HFT cable.]
According to Forbes, “Spread’s advantage lies in its route, which makes nearly a straight line from a data centre in Chicago’s South Loop to a building across the street from Nasdaq’s servers in Carteret, N.J. Older routes largely follow railroad rights-of-way through Indiana, Ohio and Pennsylvania.
At 825 miles and 13.3 milliseconds, Spread’s circuit shaves 100 miles and 3 milliseconds off of the previous route of lowest latency, engineer-talk for length of delay.
Three milliseconds is three one-thousandths of a second. Does that really matter? “That’s close to an eternity in automated trading,” says Ben Van Vliet, a professor at the Illinois Institute of Technology. “This is all about picking gold coins up off the floor–only the fastest person is going to get the coins.”
That’s a far cry from what used to be considered the ultimate in low latency–an open phone line from a trading floor in New York to one in Chicago. Later came fibre-optic networks routing information at the speed of light between the country’s two financial hubs.”
Spread Networks new, ultra-high-speed cable connection had marked the start for a full-speed race – quite literally; between trading houses and stock exchanges for finding new ways of increasing their connectivity speeds, in the age of the Internet of things to come, and it is not stopping at mere cable connections.
Where I live, in the UK’s county of Kent there is a small, picturesque and very old village called Sandwich. It was in the village of Sandwich that the word, sandwich was, it is said, invented.
The origin of the word ‘sandwich’ for an item of food may have originated from a story about John Montagu, the 4th Earl of Sandwich. He didn’t really ‘invent’ the sandwich but he may have made it popular.
It is said that in approx.1762, he asked for meat to be served between slices of bread, to avoid interrupting a gambling game. This story may have been rumour or adverse propaganda, put about by his rivals. But soon people may have started ordering “the same as Sandwich”, and the name stuck!
Anyhow, I digress…because right now – fast forward to the 21st century, there is a row erupting, among the local villagers, in Sandwich, about the proposal of a giant radio mast (or even two), which could be erected, on the site of an old power station not too far away from Sandwich. And, should planning permission be granted, by the local council…??? Then these will be no ordinary radio masts – standing at no ordinary heights. Quite the reverse…these [radio masts] will be something quite extraordinary indeed.
A Canadian company called Vigilant Global is planning to erect a 324-meter mast, not far from Sandwich, on the site of a former power station at a small place called Richborough – right on the English Channel – on the coast. As if that is not enough…an American company, called New Line Networks has also entered into the fray.
These two rival trading houses are now locked in competition, not only with each other, but with the locals and the local council; to secure planning permissions to erect these masts, which, when completed, will be higher than the Shard in London. And, all of this, is happening right on my doorstep.
Moreover, should planning permission(s) be granted – then they would be the tallest structures ever built in the world – exclusively for trading purposes- carrying data between Frankfurt and London via microwaves at speeds faster than the blink of an eye, according to a very recent Financial Times report on this topic.
The Financial Times goes on to say, that such networks have become highly-prized assets in the need for speed in the transmission of data. As a rule of thumb, it usually takes less than 10 milliseconds to send a packet of data, on a return trip to the Frankfurt; to the data centres in Basildon and Slough, in the UK.
Therefore, eliminating the curvature of the earth, between two points receiving and transmission points, across the English Channel shaves literally milliseconds off the more traditional undersea, fibre-optic cable routes – hence the extreme heights of the proposed new masts, from Vigilant and New Line Networks.
The new masts would, beyond a doubt, make the connections between these two financial data transmission and receiving ends infinitely quicker: simply by cutting several miles off the journey that the micro-signal has to travel and, thus, crucial milliseconds in financial trading times.
Typically, it takes less than 10 milliseconds to send a piece of data on a return trip from Frankfurt to data centres in Basildon and Slough. The new masts could make connections between the cities straighter, cutting kilometres and vital microseconds from trading times.
Ofcom, the UK’s telecoms regulator says, according to the FT that these two, financial companies – between them, have acquired more than 600 radio spectrum licences allowing them to use the towers and broadcast data across the south coast. And, the most sought-after site for the transmission of financial data, at ultra-high-speed, between the UK and Frankfort is from Richborough, near Sandwich; leaving the local residents afraid that their picturesque town and views over the sea, will become a nothing more than a view of a “sea of transmission and receiving towers,” for microwaved signals of financial data packets.
The straight lines of HFT communications networks and those of the refugees – a comparison
Arguably, one of the greatest forbearers of building straight lines of inter-city, roads of communications. I.e. The roads in Europe of ancient times, were the Romans – many, of which, are still in use today – right here in the UK.
For example, the road to London; running from the port of Dover, runs almost in a straight line – right through the ancient city of Canterbury, en-route to London, and it was in Canterbury, where the Romans had built their huge barracks, distribution hub and supply centres, for the whole of London and SE England.
For the Romans, Canterbury was an ideal location – not too far from the port of Dover, at less than 20 miles and with easy access to London, further up the road – also not too far away, at only 70 miles; across relatively flat terrain.
A Belgium anthropologist, called Alexandre Laumonier, has written an excellent blog on this topic entitled, “High-frequency trading in the Jungle.” In his aptly entitled blog, he makes the comparisons of the straight lines travelled across France, in order to reach the Calais refugee jungle camp (as it is called, because of the thousands of refugees living there in tents) and then onwards to the UK, across the channel.
Alexandre Laumonier, says about himself in his blog that, “he keeps a sharp eye on the algorithms ruling over globalised finance, and maps the way their orders consume space, in the game known as “high-frequency trading” (HFT). The stakes are high: microseconds are literally worth fortunes.
Information flows at the speed of light, and those who manage to make it travel on the shortest path between markets are poised to make millions. It is no coincidence, as Alexandre writes in this radical geography essay, if that path precisely crosses, in Calais, the refugees’ paths. Indeed, the only difference between the financial networks and the migrants’ trajectories is speed.”
This is a map, showing the HFT network, near where I live, near Ramsgate and Richborough, where the HFT mast could be situated, and the HFT cable (hub/distribution) network at Ramsgate – connecting with the cable’s distribution hubs in France
In 2014-2015, some networks were updated and go from Dunkerque (or Grande-Scynthe) to Ramsgate (McKay Brothers, Optiver), or from Houtem to Ramsgate (Jump Trading/New Line Networks) according to Laumonier.
Below is an infographic picture of a High Frequency Trading algorithmic platform
Therefore, the idea of having an extremely tall mast – beaming financial information, on the South East coast of England, to a mast located in France, for example, and then onwards (via cable) to Frankfurt, would shave milliseconds off the time needed, for that same information travelling, from the UK’s financial trading houses in the City of London, by the more conventional undersea (under the English Channel) cable routes. Simply because that same information would be travelling at the speed of light, but in a straight (and not a curved) line – following the curvature of the earth; via undersea cable’s and then via distribution routers at either end.
Those milliseconds, however, represent millions of pounds in either substantial profit or, in a worst case scenario – loss.
In a nutshell…the HFT (microwave information and/or packet data) transmission providers lease their networks to proprietary firms, trading desks of banks, etc., and there are two very distinct types of competitors here. There are the proprietary firms and/or marker makers like Optiver, Vigilant Global, Jump Trading, and microwave providers like McKay Brothers or Custom Connect. However, what these providers do have in common, is in leasing their networks to proprietary firms, trading desks of banks, etc.
Richborough is very near to where I live, as I have already mentioned, and today there is nothing there – except the barren field of where the old Richborough, coal-fired power station used to be. This was decommissioned and finally demolished some five years ago – with the turbines and generators being sold and shipped off to India. Richborough is only two meters above sea level and is surrounded by an off-shore wind farm and old power pylons.
However, the location of Richborough is absolutely ideal, for totally unfettered data transmission to HFT data recipient masts – located in France, just 25 miles away, across the English Channel in France.
The only problem here is in beating the earth’s curvature: in achieving an almost straight line of data transmission from microwave radio mast, to microwave radio mast. Thus shaving milliseconds off the time of sending the financial information, to the time of the receiving of such information and being able to act on it – instantly.
Therefore, in order to overcome this problem, the mast, which could be built at Richborough – should planning permission be granted, has to be tall – very tall, indeed. Hence Vigilant Global is planning on erecting a guy-roped mast, which would end up being be the highest man-made structure in Europe. Upon completion, it will be higher than the Eifel Tower in Paris and the Shard in London – standing at 324-meters tall.
Vigilant Global and New Line Networks V’s the local residents
This tower (should it ever be built) will be the highest tower ever built in the world – built specifically for trading purposes – should planning permission be granted to Vigilant, for construction to go ahead?
To that end Vigilant Global and New Line Networks have been on a charm and education offensive: to primarily educate the local population (complete with a whole lot of charm and local Q&A meetings) as to the benefits of letting them operate and build their mast, in the area.
Vigilant Global have, however, carefully avoided using the words “trading” or “finance” on their rather excellent website and local, hard copy literature, but have concentrated, instead on extolling the virtues of enhanced mobile phone coverage and superfast broadband; from their radio mast to the local population and they have also been investing heavily in the local community, with tie-up/sponsorship deals in the local Sandwich Technology School, etc., for example.
As a local myself to the area, I can understand the local people’s sentiments in not wanting these structures being built at all – spoiling people’s views, from their homes, of the rolling fields, leading down to the sea – not to mention the increase in commercial traffic, while they are being erected and set up.
One thing is for certain though – however, this turns out…HFT is the future of financial trading, between the banks, and the various stock exchanges and speed of information delivery is the absolute king – the holy grail for financial traders and this issue, rather like fracking, is not going to go away anytime soon. In fact, it’s only just begun – on a worldwide scale. This is the future of financial trading – the need for speed.
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