Speed-of-light trading hits Europe

October 23, 2014 04:52 AM

European trading is poised for an upgrade.

McKay Brothers International, a Geneva-based provider of networks for trading firms, plans to activate a microwave data link covering the 370 miles (600 kilometers) between the London suburb of Basildon, where markets including Intercontinental Exchange Inc. house computers, and Frankfurt, another financial center where Eurex is based. The goal is to migrate McKay’s Quincy Extreme Data service from a third-party system onto the company’s own wireless network.

“The people that procure from us are extremely sensitive about latency and they can measure it to the microsecond,” or millionth of a second, said McKay co-founder Stephane Tyc, who has a Ph.D. in physics from Harvard University and worked at BNP Paribas in equity derivatives for 17 years. “You can’t be waving your hands and saying, ‘It’s pretty fast.’ They will know exactly what they get.”

Microwave towers permit traders to buy and sell stocks, bonds and futures at speeds approaching the speed of light, the universe’s ultimate speed limit for data transmission. Trading firms that want the quickest reaction times can either build their own networks—like Jump Trading LLC, one of the world’s biggest high-frequency traders—or buy capacity from vendors like McKay, which touts its American microwave network as the fastest known technology.

London, Frankfurt
Traders seeking to buy and sell financial assets faster than anyone else, employing strategies to profit from fleeting price discrepancies or react to news first, began using microwaves several years ago, partly replacing fiber-optic networks because wireless transmission is quicker.

In Europe, they speed up communications between London and Frankfurt. In the U.S., microwave towers link the two major market centers: New Jersey, where the computers that run stock exchanges are based, and Chicago, the home of futures trading.

McKay’s first European product using its own line will connect market data centers in Basildon, England, to Frankfurt, Tyc said. A line from Slough, England, to Frankfurt “should come on the heels of it pretty quickly,” he said during an interview.

The network McKay uses at present conveys data between Basildon and Frankfurt in about 2.175 milliseconds, according to the company. (For comparison, Toyota Motor Corp. says its airbags take almost 14 times longer to deploy.) Tyc declined to say how much faster the new service will be, citing nondisclosure agreements with clients. McKay charges 6,500 euros ($8,200) a month for the product.

Theoretical Physics
If, once McKay turns on the new equipment, it proves faster than the current arrangement, “we’ll move the Quincy Extreme Data service to our own bandwidth,” Tyc said.

McKay was founded by Tyc and Bob Meade, who has a Ph.D. in theoretical physics from Harvard and worked at high-frequency trading firm Ronan Capital, according to the company’s website.

Critics of super-fast electronic trading say technology such as microwaves gives some traders an unfair edge. Tyc says McKay is an equalizer because, as far as he knows, his service is faster than any other transmission system, meaning anyone who pays the fee has access.

Other firms sell access to microwave networks to trading firms. Custom Connect BV, based in Amersfoort, Netherlands, owns a network completed in March 2013 that connects Frankfurt to London, Jan Willem Meijer, the company’s chief executive officer, said in an interview. Perseus Telecom says it began offering customers a microwave connection between those cities in October 2012.

NATO Tower
Some high-frequency traders have their own networks. Chicago-based Jump Trading has a microwave tower in Houtem, Belgium, once used by NATO. Other companies using similar systems to connect Frankfurt and London include Flow Traders, Optiver and Vigilant Global, according to Alexandre Laumonier, who tracks public records on the topic and has written a book in French about about high-frequency titled “6/5.”

Laumonier, who wants to earn a Ph.D. in anthropology studying the nature of markets, also keeps a blog named “Sniper in Mahwah,” the name of the New Jersey town where the New York Stock Exchange’s computer systems are.

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