Speed of Light Constrains High-Speed Traders
December 14th, 2010 By: Rich Miller
A new study from MIT is getting attention for its central thesis: that the speed of light is becoming a bottleneck for high-speed financial traders seeking to execute trades in microseconds on a global scale. The paper is discussed this morning at PC World (link via InsideHPC). “Recent advances in high-frequency financial trading have made light propagation delays between geographically separated exchanges relevant,” write authors Alexander Wissner-Gross and Cameron Freer.
The paper has significant ramifications for data center infrastructure. The MIT researchers have done detailed calculations about where trading networks can locate data center infrastructure to capture additional microseconds. They first mapped out the locations of major global exchanges, and then charted the optimal placement of servers to create “chains” that could accelerate the transmission of pricing data and execution of trades.
“Note that while some nodes are in regions with dense fiber-optic networks, many others are in the ocean or other sparsely connected regions, perhaps ultimately motivating the deployment of low-latency trading infrastructure at such remote but well-positioned locations,” the MIT paper notes.
Trading Infrastructure Branches Out
The infrastructure for high-speed trading has historically been concentrated near major financial markets in colocation centers that offer space close to servers for financial exchanges that execute trades, known as “matching engines.” This practice, known as proximity hosting, has thrived in northern New Jersey and downtown Chicago. The leading players in this market have been Equinix (EQIX) and Savvis (SVVS), but both NASDAQ OMX and NYSE EuroNext (NYX) have entered the market and begun selling colocation space in their New Jersey data centers.
As the appetite for global trading has grown beyond New York and Chicago, trading infrastructure has become more distributed. NYSE Euronext recently unveiled plans to expand its infrastructure to add a point of presence in 25 to 40 data centers around the world.
The map generated by the MIT researchers suggests additional data center density in obvious locations, including the Pacific Rim and the “BRIC” countries (Brazil, Russia, China and India). But it also posits additional sites in areas like Africa and Russia, as well as many locations in the middle of the ocean.
New Undersea Cable Driven by Traders’ Requirements
These locations would be seen as non-starts for data center development for most industries. But the economics of high-frequency trading – in which a minute technological advantage could translate into a superior trading position – could create surprising possibilities. A case in point: Although there’s plenty of trans-Atlantic fiber capacity, Hibernia Atlantic recently announced plans for a new submarine cable. Hibernia said the new Project Express cable will provide high frequency traders with latency of under 60 milliseconds between New York and London, faster than the current top speed available on the fastest trans-Atlantic cable, Global Crossing’s AC-1.
“If the project comes to fruition, it will put Hibernia and its Global Financial Network into a powerful position for all latency sensitive transatlantic traffic,” wrotes Rob Powell at Telecom Ramblings.
What about those locations in the middle of the ocean? There’s always Google’s patents for a water-based data center. Google declined comment on whether it has ever built such a facility, which envisions using the ocean to provide power and cooling to floating data centers located offshore in 50 to 70 meters of water
But major players in the financial industry have also been interested in developing ocean-powered data centers. At one time Morgan Stanley developed plans to spend more $400 million to build a huge data center in Scotland that will be powered by tidal energy.
Modular data centers could prove to be a key tool in quickly deploying capacity in new locations for financial traders. Data center containers have been posited as a means of bringing high-speed broadband to secondary markets by companies like Allied Fiber. But as Allied Fiber notes in its strategy, the baseline ingredient in any wholesale expansion of trading connectivity routes is fiber. That’s the first component that must be cost-justified for the MIT researchers’ connectivity map to ever be realized.
For more on this topic, check out our High Frequency Trading Channel or see these resources:
- Can High Frequency Colo Support Many Players?
- NYSE Euronext’s Future: The Data Center
- NASDAQ OMX Group Expands Colo Deal with Verizon
- Equinix Plugs Into Even Lower Latency