05.16.2012
By Terry Flanagan

Atlantic Arms Race Debate Picks Up Speed

As the race to zero latency hots up across the Atlantic Ocean, some market participants believe this scramble to be a futile, and costly, process—as other, newer, technologies begin to appear on the trading scene.

Shaving precious microseconds from execution times has been a pre-occupation of some high-frequency trading firms, but opinions are divided as to what the real benefits are.

“It’s interesting to see how this arm’s race develops,” Mark Casey, president and chief executive of CFN Services, a provider of managed automated trading services based in Virginia, told Markets Media. “But chasing endless latency is waning and trading firms are getting a little tired of it as, at the end of the day, they have to fund it. They all just have to go to the next best thing and pay whatever they have to to get that.”

A market source, based in London, told Markets Media: “This race to zero is pretty much done now. But some people insist on measuring in microseconds. Not all high-frequency traders want to be fastest. It’s a daft strategy to say I always want to be fastest as there will always be someone who will be faster.

“If you spoke to 500 brokers, only about 20 guys are interested in latency. Most of the others have no idea what you mean when you say latency. It has no impact on the way they do business.”

However, some technology providers have been busy recently in upgrading or replacing existing fiber optic cable on the sea bed of the Atlantic Ocean in this quest for zero latency.

New York-headquartered Sidera Networks, a fiber optic-based network carrier, this week announced that it was extending its low latency connectivity from New York to markets in London and Toronto, while Perseus Telecom, the New York-based trading connectivity firm that claims it will be able to deliver the fastest trading execution times along its subsea fiber optic cable from London to New York in just shy of 60 milliseconds later this year, this week also announced that it had selected network specialist Ciena to build its end-to-end, ultra low-latency network between the U.S. and Europe.

Perseus Telecom, in partnership with Indian telecommunications giant Reliance Globalcom, last month announced that it will be providing the quickest transatlantic fiber-optic cable connection between major financial exchanges in London and New York. Perseus expects to guarantee execution times of just under 60 milliseconds, beating the previous top speed of 64.8 milliseconds. A rival, Hibernia Atlantic, a New Jersey-based operator of undersea telecom cables, has also announced plans to lay a new cable under the Atlantic and says it will offer speeds of 59.6 milliseconds when it comes on stream some time next year. Hibernia says its project will cost $300 million, while Perseus, who merely upgraded an existing cable, says their upgrade work cost just $30-$35 million.

“Perseus Telecom has taken an existing cable system and created an entirely new, cost-efficient service to meet the growing demand for ultra low-latency trading solutions across the Atlantic without having to lay new subsea cable,” said Ed McCormack, vice-president and general manager, submarine systems, at Ciena.

However, Perseus’s chief executive, Jock Percy, is fully behind this race to zero.

“I completely understand it and we get it as a business and we support the risk mitigation that I think is the biggest component part of technology,” he told Markets Media.

Meanwhile, a new, quicker, system of executing trades has appeared on the scene in the form of microwave technology. The most latency-sensitive high-frequency traders are now using microwave transmission systems rather than relying on physical cables to conclude their trades.

At present, microwave connections are prohibitively expensive for many firms and can experience interference from weather—while the maximum distance it can be used is approximately 100 kilometers.

“Microwave is a coming development in the race to zero,” said Casey at CFN Services. “In terms of the physics, microwave is just an infrared radio spectrum so it travels at the speed of light. It’s about 50% faster than light through fiber so you have an inherent advantage of sending through the radio spectrum and you can also create a straight line with microwave which you can’t really do with a cable—so you can create a much lower latency. Microwave is such that firms can build their own so you don’t need to rely on telecom firms for the infrastructure.”

However, Percy at Perseus Telecom says microwave has its drawbacks.

“There is no other technology at the moment other than fiber optics that can do 5,400 kilometers between London and New York,” he said. “You can’t shoot microwave an elliptical distance—it only goes 50-100 kilometers.”

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