The technology that runs Wall Street continues to make strides even as regulators and participants alike battle to comprehend what the market place has morphed into over the years. The culture that has gripped Wall Street is one focused on speed over one focused on accurate earnings models and the cabability of management. Money managers who were once focused on the long-term viability of a business plan or cash-flow growth now must concern themselves with the risk that takes place at the point of transaction. As we saw with the Facebook IPO, exchanges are not able to handle the flood of data that originates from high-speed traders on days with real volume. In the inherent race for a quick buck, financial market participants have foregone the tried, tested, and proven ability of long-term investment to help grow wealth for the untested, unstable, and still undefined strategy of high-frequency trading.
Since fiber-optics have to ride along an uneven bedrock and are forced to wind around buildings and underground piping (perhaps even under the city of Atlantis), microwave signals are being tested for trading because of their ability to beam signals directly to each other. In some areas dishes can be 30 to 40 miles apart if the terrain allows it.
This operation will culminate with the creation of the “fastest high-speed data network between two fo the US’s most important financial centres of New York and Chicago” FT Alphaville reported. Generally speaking microwave signals are able to outpace fibre-optics in a perfect vaccuum environment by about 50%. Aviat Networks claims that microwave signals are the champions of low latency: “Latency is largely a function of the speed of light, which is 299,792,458 meters/second in vacuum. Microwave signals travel through the air at approximately the same speed as light through a vacuum and will have a latency of approximately 5.4 microseconds for every mile of path length. Light travel in optical fiber has latency of 8.01 microseconds for every mile of cable, due to the refraction in the fiber. When data has to travel over 1400 miles from Chicago to New York and back again the latency difference due to the communications medium alone is more than 3.5 milliseconds“
This whole process just adds more complexity to the system which is unnecessary as a commenter pointed out to me when I proposed on ZeroHedge to enable a filter option for traders to sift out quotes designed to actually be hit (longer than 2 seconds). And the person was right. Our system has become so complex and fragment that we are on the cusp of losing complete control over it and more more complexity to the point of execution is choking us.
The team behind this move consists of BGC Partners and our good friend (sarc) Minoj Narang’s Tradeworx, the only HFT player to come out and try to defend this practice. How great would it be to sit in a bunker in say Afghanistan and use a Disrupter algo to induce chaos into the global financial markets. It’s not a far fetched idea (Exhibit A).
This system of microwaves that will be beamed through cities and around human beings is not expected to interfer with any other signals (until it does) and it should be up and running by the end of 2012. The venture will offer Tradeworx access to BGC’s US Treasuries data products and will also incorporate a myriad of other feeds for CME futures data and equity data.
On a tick basis using microwaves over fibre-optics, Tradeworx will expect to gain $0.01 on the S&P 500 eMini product. So when those unsourced rumors are disseminated we will achieve even more grandeous price movements as automated strategies receive, process, and react like lemmings and the fastest one to stuff the queue and get in line will make bank. Non-HFT’s only hope is that on Earth Day the “strip mall of stock exchange server farms” as Themis Trading dubs them, will shutdown and offer a day of clarity.