High Frequency Trading Next Door - Part V (Beginning)

Note Perev .: This is the first of the two final parts of the High Frequency Trading Next Door. In this part, the author will talk more about how NATO communication lines in Europe, which had strategic military significance for the United States, eventually became used by high-frequency traders and what is common between modern communication lines for transmitting exchange (and military) information, used by Napoleon at Waterloo, and the ancient Greek method of data exchange at a distance.

Introduction: Arms Race and Information Transfer

The story is quite famous: in 1815, the English banker Nathan Mayer Rothschild used the post pigeons to be the first to know about the end of the Battle of Waterloo. The pigeons easily crossed the English Channel (they are not afraid of their reflection in the water), flew to London and reported to Rothschild about the defeat of Napoleon, and the banker, thus, " broke the bank by buying British securities." According to official data, Rothschild earned a lot of money because he owned the fastest information transfer technology (pigeons), but this is not true: the other part of the story (almost unknown to anyone) is that Napoleon had a technology that transmitted information faster than could do someone from the pigeon family: the telegraph Chapp ( more about the history of high-frequency trading is described here ).
')
In short, this "optical" or "air" network, invented by Claude Chappe , consisted of various semaphore relay stations that transmitted information throughout France:



Such networks were considered “optical” in the sense that semaphores were used to transmit signals between two points within the line of sight (as in microwave communication lines in our time); This explains why the stations were located on existing elevations (on hills, for example) or, even at that time, on stationary towers. Napoleon's army was a very unrestrained client of Chapp, and the emperor invested a considerable amount of money in the network, so the news of the defeat at Waterloo had to reach Paris before London. But the race was won by the Rothschild pigeons. Why? Mist my friend! On June 18, 1815, the fog under Waterloo was so thick that Napoleon’s soldiers were in turmoil, and the Chapp network was completely out of order: because of the fog, the signal from Waterloo to the stations in northern France was impossible to transmit - nothing could be seen. Here is the bad luck. The story is unusual in that fog is still a problem for modern networks of HFT (UHF) communication lines, two centuries after the defeat at Waterloo. Technologies may change, but nature nevertheless remains the same.

After the war, there were always problems with delays. Greg Laughlin, who worked on modern ways of transmitting information between New York and Chicago (from fiber to microwave lines), wrote in his blog about ancient and mythical data transmission: “news about the defeat of the Trojans, which over the course of one night were transmitted to the contemplating intrigue Clytemnestre 400 miles from Sparta ". In Agamemnon of Aeschylus, one can read the following: “Hephaestus, who sent messenger fire from Ida. / Fire to a fire, a fire to a fire a news / Transferred. Id answered with flame / On Lemnos, the Germanic cliff. Island / Mount Athos, Zeus' house, answered " etc." The signal was a flame, and, since Aeschilus gives the names of "stations", Greg was able to mark on the map a network of 600 kilometers from Troy to Mykonos:



The longest journey over the sea is 177 kilometers (from the famous Mount Athos to Kandillon [ English Kandilion ]), and most stations are located on high hills or in the mountains. If you scale up for Mount Ieraneia [Eng. Jeraneia], then guess what can be found there now? Stunning modern metal tower:



I repeat, technologies can change, but, one way or another, they must take into account the unchanging features of nature.



“Considering that the message transmitted one bit of information, the signals were encoded at the Shannon border.”

Past I: Howth, from the US Army to Jump Trading

To begin with, what made me start researching the networks of microwave communication lines used now (or in the future) by HFT companies in Europe from London (Slough / Basildon) to Frankfurt. The article in Bloomberg, which initiated my investigation, was entitled “Wall Street acquires a tower from NATO to transmit microwave signals in pursuit of speed” - here “Wall Street” means Jump Trading LLC , one of the leading players in Chicago who bought this tower in Houteme, Belgium. Here is this tower (see Part II for details):



Before I started hunting for other towers, in order to create a map of high-frequency trading in Europe, I checked the authenticity of the history of this tower and soon realized that this tower with stretch marks was built not by the forces of NATO and not for himself (despite that parts of NATO were nearby). Bloomberg was right when they wrote in the article on the US Armed Forces , as this tower is part of a curious story about the early microwave links built by the US Army in Europe. Trying to give a general idea of ​​the history of military communications networks is quite difficult (due to the so-called “defense secrecy”), but the beginning of history is probably the “ Agreement on the use of certain telecommunications equipment between the governments of the United States and Belgium” of April 19, 1963.

Article 1 says: “The Government of Belgium authorizes, ratifies, and confirms the installation, operation, and maintenance of the US government of telecommunications facilities in Flabeck and other cities, according to the current and possibly subsequent agreement of the authorities of the United States and Belgium, respectively . ” This means: in 1963, the United States began the installation of various microwave communication lines in Europe as part of the communication system of the Ministry of Defense [ eng. Defense Communication System, DCS ]. The tower in Houteme is not mentioned here, but it is surprising that the name Flaubeck (a small town in Belgium) is mentioned, because in 2015 various competing HFT companies ( Flow Traders , Jump and, possibly, Optiver) installed their antennas on this old military tower :



The communications system of the US Department of Defense had a number of facilities in Belgium, Greece, Italy, Portugal, Spain, Turkey and the UK, and this system consisted of a combination of communication terminals of radio relay lines with a satellite. These networks were not built in a few fractions of a second: thanks to Julian Assange and WikiLeaks from a declassified telegram (dated April 6, 1973 with the heading US System of Microwave Lines in Belgium), it is possible to find out that It was May 1973, but we understand that the terms of the agreement are currently being reviewed by the general contractor in order to establish a new term for the end of 1973 or the beginning of 1974 [...] we must receive copies of site visit reports dated January 2, 1973, containing a plan of completed and unfinished work on six of seven sites in Belgium (Howtham, Westrozebeck, Flabeck, Chapé, Le Chenouin, Ben-Ahin) ” . This is the first mention of the tower in Howm. From here you can find out that the Belgian part of the communications system of the US Department of Defense was in working condition from the middle of 1974 (this confirms the data with the assumptions that the Houtemsk tower was built in 1973).

From the book US Armed Forces and military installations in Europe , published in 1989, you can find out that the US Army had 19 installations in Belgium (military warehouses, outbuildings, etc.), including these three towers:



Looking a little more, you can find some old maps of the communications system of the US Department of Defense with the towers in Flabeck and Howtem on them:



These documents are interesting in that you can connect the tower of the road (which is now owned by Jump) with the tower in Flabeck (on which Jump is located next to Flow Traders). You may notice how HFT firms from Flabeck (Belgium) to Swingate (United Kingdom) use the former communications network of the US Department of Defense:



Under the control of the US Army was another network of microwave communication lines, which was called the " European system of tropospheric radio communications ." This is simply amazing, because part of this network runs from Flabek to ... Frankfurt! This fact made me think about HFT-towers in Germany, since there are no publicly available data about them in this country. I plotted the tropospheric communication routes on my map (in the picture below) and wanted to know whether 1) the Custom Connect route passes through Pryum or not, and 2) whether all the competing companies in Simmerat (McKay, Jump, Vigilant, Optiver and Latent) use after transmitting a signal to a tower in Weibern with a tower in Feldberg , just 20 kilometers from the Equinix data center located in Frankfurt, which houses the Deutsche Bourse / Eurex engine, bringing together buyers and sellers:



On the other side of Flabec, the route of Houthem-Suingate seems to have aroused interest, because it is rather difficult to cross the strait (it can hamper the fog, we have to deal with the fact of signal reflection from the water surface, etc.). At least three scientific articles were published on the topic of these difficulties, the first in 1979 by the Information and Technical Center of the US Department of Defense, Requirements for Delays on the Houtem-Suingate Communication Line . The second article was released in 1979 by the US Department of Commerce, Distribution of signal levels and analysis of signal fading for a 5 GHz microwave link passing through the English Channel , and describes “using the results of measuring and measuring signal fading on a microwave link 88 kilometers passing through the English Channel and operating in the frequency range from 4 to 5 GHz with multiple signal separation within the line of sight ”(Jump now uses the frequency of 7.470 GHz to cross the strait). The fact that (at least) the three old technical articles addressed the problems of microwave communication lines arising from crossing the strait can certainly explain the “ huge number of speculations ” that I talked about in Part IV when the HFT providers decided to pave their routes of microwave communication lines in Europe around 2012.

According to this document, published in 1996 by the United States Air Force Directorate, the Defense Ministry’s communications system network in 1979 was modernized and renamed the European mainstream digital communications system [ Eng. Digital European Backbone, DEB ]: “The program of the European mainstream digital communication system replaces the current analogue microwave microwave communications equipment of the US Department of Defense in Italy, Germany, Belgium, Holland and the United Kingdom with digital microwave microwave encryption equipment”; in 1988, Phase III expanded the range of digital services facilities from Belgium to the UK. In addition, this line provides connectivity of digital communication channels, forming a digital communication system with fourfold separation within the line of sight, and also allows communication through the English Channel ” - this means that in the 1990s the US Army still used the Houtem tower .

According to another document published by the Department of Defense, in 1999 all the towers in Belgium still belonged to the United States. However, on January 20, 2006, the Ministry of Defense announced “the decision to deactivate and return to Belgium three objects of radio relay communication lines. Object locations: Howtham, Westrozebeke and Flabeck. The United States no longer needs these facilities, as the services of the radio-relay communication lines system created in 1996 will be replaced by more productive and cheaper commercial communications services , that is, fiber-optic cables. “The abandonment of these facilities will result in an annual savings estimated at $ 84,000.”

So ... in 2006, Belgium returned three towers, but soon my country realized that these towers are expensive and worthless. The tower in Westrozebeck was demolished; the Flabeck tower was used by the Belgian Ministry of Defense, but thanks to this document, we know that the radio connection was turned off ... two weeks ago, on January 1, 2015; and in 2012, Belgium decided to sell a poorly maintained tower in Houteme. I talked about the rest of the story in Part II : On December 18, 2012, a grandiose auction took place in Houteme, the Belgian government set a starting price of 255,000 euros, but HFT companies that supply microwave radiation competed with each other, and The fight was successful and acquired a tower in January 2013 for 5,000,000 euros (and also spent another million to reconstruct the structure). This is how the old American tower with braces, installed by the US Army in 1973 in Belgium, was bought by an American company 40 years later. A striking detail: the American army returned the tower, because new fiber optic cables were more efficient (in terms of bandwidth), and the American company soon acquired the tower, because microwave radiation is more efficient than optical fiber (in terms of delay time). What a twist of fate!

The Past, Part II: The Neighborhood of the US Army and NATO

The NATO bloc has never participated in the construction and did not own the Houtemsk tower. But, nevertheless, NATO has to do with it. Under the control of the North Atlantic Alliance, among other things, various radio communication networks were located, and one of the main ones was the NATO OAS tropospheric communication system in Europe ACE High [ eng. Allied Command Europe High ]. The network was created around 1956 and was decommissioned in the late 1980s. Take a look at the map:



The network ran from Turkey to Sweden through France and the UK. However, in 1966, Charles de Gaulle announced “ withdrawal from the very center of the NATO bloc, saying that participation in the military command of NATO undermines the independence and sovereignty of France . ” This means that radio networks could no longer use towers in France. The organization decided to bypass France by creating new routes in Italy, Germany and Belgium to get to the UK. Below is a map of the “redeployment bypass routes” that were used after 1966 (indicated here with blue and green):



Because of Charles de Gaulle's actions, NATO needed to build a tower in Belgium in order to cross the English Channel: this tower, designated on the map as “BADZ”, is located in Adinkerke, 8 kilometers from the Houtem tower (it is still there):



Another surprising fact about the NATO network: in one of the subnets (in the “microwave microwave relay system of the Central European Air Force”) a tower was used in Barack de Freture (in the east of Belgium). Guess what from this year can be found on this tower? Antennas HFT provider microwave radiation, Custom Connect . There are many other interesting details about these old towers, but I would have to talk about them for too long. Just note that for geopolitical reasons, the NATO networks and the US army had to converge in Mons (Belgium), where NATO's headquarters in Europe moved, one of the divisions of the Allied Strategic Command, after France’s withdrawal from NATO. This kind of interconnected network called ... " neighborhood ". And last but not least: the end point of the networks of NATO and the US Army was Turkey, that is, both networks passed through Greece, and so the networks of microwave communication lines of the 20th century (indicated by green and blue in the picture below) almost coincided with the ancient mythical Troy-Mykonos flame transmission network in the mountains of Greece:



To be continued...

PS If you notice a typo, mistake or inaccuracy of the translation - write a personal message and we will fix everything promptly.