Resisting The Race To Zero
The costly race to zero latency in search of greater revenue generation appears to be waning despite electronic trading accounting for an ever larger portion of overall trading volumes.
Attempting to shave precious microseconds from networks, market data applications and trading engines has occupied many market participants over the past few years but this ‘arms race’ may eventually be running its course.
“The world is going to move away from worrying about micros and nanos,” Tanuja Randery, chief executive of London-based MarketPrizm, a trading technology company, told Markets Media at WBR’s Trade Tech Europe 2012 industry event in London this week. “In a way, the issues in the markets and the high cost ratios of the banks are causing all of them to realize that this strategy entirely focused on latency is no strategy at all.
“I find it interesting in the race to zero that a lot of the financial institutions have focused on technology as a way to differentiate. I actually think eventually that will never be a source of differentiation. Time has come to move on.”
However, one trading connectivity firm that is at the forefront of seeking zero latency, Perseus Telecom, thinks there is mileage left yet in this need for speed.
“We completely understand the race to zero latency and we get it as a business and we support the risk mitigation that I think is the biggest component part of technology,” Jock Percy, chief executive of Perseus Telecom, told Markets Media at Trade Tech.
“The arms race is a funny phrase. It suggests that there is some winner and suggests that there is some negative influence or some negative impact on us as a financial group. Technology has only ever made finance safer. With very few exceptions.”
U.S.-based Perseus Telecom, in partnership with Indian telecommunications giant Reliance Globalcom, this 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. 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 a current cable, says their upgrade work will cost just $30-$35 million.
“If somebody beats us and does the perfect optimal scenario then we’ve at least got a very fast diverse product,” said Percy. “It’s not that bad. But for very low capital expenditure.”
While, Jon Payne, manager of sales engineering at technology vendor InterSystems in London, believes that upcoming regulation will severely curtail this race to zero latency.
“What is going to be important are the political and economic factors and being able to operate efficiently within those constraints,” he told Markets Media at Trade Tech. “I think that is a very different set of constraints to having the fastest execution in a simple market.”
He added: “People always pursue absolutes and ultimately I think in a way it is a little dangerous and takes the focus away from what is important and that is, in my mind, that it is not doing trades in the minimum amount of time but doing the right trades in the minimum amount of time and that’s a different thing.”
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The analysis is based on transactions publicly reported by 30 European APAs and venues.
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