Trading at the Speed of Light by Donald MacKenzie

Author:Donald MacKenzie
Language: eng
Format: epub, pdf
Publisher: Princeton University Press
Published: 2021-02-03T00:00:00+00:00

Pilosov, similarly, says that on his link, “basically every summer morning you would experience attenuation.”

Millimeter Wave and Lasers in New Jersey

What gave and still gives the Chicago–New Jersey fiber-optic and microwave links their huge importance to HFT is the signal that I call “futures lead” (whose history was explored in chapter 2) and, more generally, the connections between the trading of futures and the buying and selling of shares and other underlying financial instruments. Another class of signal, which I call fragmentation (by which I mean signals that are generated by the trading of the same shares in different places; see table 3.2), grew in significance as the number of exchanges and other venues trading US shares increased. Those exchanges and trading venues, and their matching engines, are almost all based in the triangle of New Jersey datacenters shown in figure 1.3. (A fourth datacenter, NJ2, close to the Hudson River, was important in the recent past but no longer plays a large role in HFT.14) With all the leading shares being traded in all the New Jersey share-trading datacenters, the transmission of data among those datacenters—New Jersey “metro,” as those involved call it—has become an activity nearly as salient as the microwave links to Chicago. There is a similar cluster of metro links around Greater London, and also in Chicago between Cermak and the Chicago Mercantile Exchange’s suburban datacenter. For simplicity, however, I concentrate here mainly on New Jersey, the most important of these clusters. (For the same reason, I’m also not going to discuss the financial world’s long-distance microwave routes other than Chicago–New Jersey. The most important of these other links are those between Washington, DC, where the release of US macroeconomic data takes place, and the trading datacenters in Chicago and New Jersey; and the link that connects London’s financial markets to Frankfurt. The latter route is examined in detail in Laumonier [2019].)

The importance of speed of transmission among the various New Jersey datacenters in which shares are traded—now axiomatic—took time to be recognized fully. As Mike Persico, founder of Anova Financial Networks, puts it, when he first got involved in New Jersey metro in 2009, “low latency [fast speed] was [often] just a marketing term.” Those who used the term often “didn’t believe it. They didn’t live it.” It seems, for example, to have been quite common for the big banks that acted as brokers for institutional investors simply to lease fiber-optic links from telecom companies without inquiring in detail into the routes taken by those links. Thus it could easily happen, as interviewee TO told me, that the cables leased by banks did not run directly between the New Jersey share-trading datacenters but indirectly via the telecom hub, Halsey, in Newark. (It is, for example, quite possible that some of the complaints about HFT algorithms exploiting institutional investors’ orders reported in Lewis’s Flash Boys [2014] were the result of issues of this kind, with banks not paying enough attention to the material means by which those orders were distributed among datacenters.

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