High Frequency Trading Neighborhood - Part V (Final)

Note Perev .: This is the last part of the material “High Frequency Trading Neighborhood” about HFT trading in Europe and the use of microwave radiation for the transmission of exchange information. In this part, the author will talk about what other military facilities (besides NATO facilities) are currently used in Europe for the benefit of HFT trading, and also about which most likely technologies will ensure the transfer of exchange information in the future: the last chapters of “High Frequency Trading Neighborhood "devoted to the project Hibernia Atlantic, plans for the construction of intermediate" nodes "with data centers between exchanges and ... balloons Google.

The Past, Part III: The Royal Armed Forces of Great Britain

The story would be incomplete if I did not say a few words about the Royal Armed Forces and the Chain Home radar detection system. Chain Home was a network built before and built by British troops during the Second World War to locate German aircraft (see map ). The most famous of the towers built were probably the Three Sisters in Swingate, established in 1936 (this is how NATO networks and US armies could use these towers to cross the English Channel in 1960–1970). One tower was dismantled in 2010 (due to structural instability), but one of the two remaining antennas can be found in several competing HFT companies: McKay Brothers, Optiver and Jump Trading. Thanks to the Houtema tower, Jump no longer needs a tower at Swingate to reach Basildon [see Part II ], but I am sure that the firm from Chicago still needs it to send signals to Slough.
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If you want to know more about the history of these towers, just read the construction application filed by Jump Trading when it asked for permission to install antennas. Surprisingly, the Chain Home system ran from Swingate to Dunkirk ... where you can find other HFT companies (McKay, Latent, Optiver, Custom Connect). Thus, two companies (at a minimum): McKay Brothers and Optiver, use the route that is the same microwave signal transmission route created by the Royal Armed Forces in the 1930s:



The towers in Swingate and Dunkirk are very famous in the UK. Thanks to their role in the Second World War, they were included in the list of the National Treasure of England. Both towers are now historical monuments, and it’s a pity that the two HFT firms, Custom Connect and Jump Trading, were rather disrespectful towards history: I wrote in Part III about Jump’s apologies for having set their plates in Swingate before submitting a construction application ”(in their own words ), and then I learned that Custom Connect had installed its antennas in Dunkirk without permission. As one of the employees of a competing HFT company told me, “on the monument of the Second World War is a criminal offense” ...

Future, Part I: Hibernia Atlantic

The US Army, NATO, and the Royal Armed Forces built many towers in the second half of the 20th century, and these towers are now filled with antennas that belong to various HFT companies-providers. The Houtemsk tower was sold to Belgium in 2006, as the US Army found a more profitable technology: fiber optic cable. Towers transmitting microwave signals within the line of sight attracted the attention of new customers (high-frequency traders), since in this case the delay time is shorter than when using cables. I tried to find maps of fiber-optic networks between London and Frankfurt (to compare them with the routes of microwave networks), I even contacted some network service providers, but did not receive a reply (“ trade secret ”).

I once considered a large and similar map of London's fiber-optic networks posted on the wall, but since the action took place on the marketplace of one of the largest and most active players in the market, I was forbidden to take pictures. With the help of Google Images, you can find maps of providers such as euNetworks , but their schemes are too simplified, and, generally speaking, you cannot see the real route of the laid cables. There is only one exception: on the Zayo website you can find various cable networks that are under the control of the company. Naturally, the form of the route London-Frankfurt is far from a straight line:



Since the combined lines of different types of networks are called “neighborhoods”, we turn our attention to the neighborhood in Cornwall in the south of England. At this point, the continental routes of HFT radio-relay links terminate and converge with the fiber-optic cables necessary to cross the Atlantic Ocean. I made a mistake in the previous parts of this heading: you need not one but two cables, and it seems that HFT firms do not use the same cables to cross the ocean.



Jump's latest radio-relay network antennas are located at Skewjack. According to Andrew Bloom's terrific book “ Pipes ”, locals call this place “skewjack” because surfers set up their camps here (read this interesting interview to understand why surfers are compared to “ trying to catch a wave ” HFT algorithms, and also see this old post [French] on the role of surfers in HFT advertising). This station has a FLAG Atlantic 1 ( FA-1 ) cable, which is owned by Reliance .

A curious fact: if you remember, a company called Perseus Telecom is a provider of wireless services for various HFT companies in Europe; Perseus does not (at the moment) have any networks, but they rent a part of the Jump frequency range (see Part II ), so it is clear that Perseus resells the FA-1 cable to its customers. I don’t know for sure, but it’s likely that Perseus’s customers could purchase both a radio relay network from Frankfurt to Cornwall, and an FA-1 cable from Cornwall to the United States.

The proximity of Jump Trading and Perseus may explain why Jump’s competitors (at least Optiver and Vigilant) used another cable called Atlantic Crossing 1 ( AC-1 ), whose slogan reads: “One planet. One network. It is said that it is faster than the FA-1. The station laying of this cable is called the “White Sands Cable Station”, and a detailed description of the object can be found in “ Pipes ”, where Andrew Blum writes about “ one rack with the word SLAU ” - that is, the White Sands-Slough cable network.

However, high-frequency traders no longer need it, since they use microwave radiation to save a few milliseconds between two points. In this regard, both of these stations in Cornwall, for sure, will soon become history. As I wrote in Part III , a new cable is currently being laid between the UK and the USA: the famous Project Express , owned by Hibernia.

Hibernia is a major provider in the world of finance : here you can find different locations of their cables. The “old” AC-1 cable offers a transatlantic connection for 65 milliseconds, and Project Express presumably reduces this time by 6 milliseconds (which is why my book is entitled “6”). A cable with a length of 4,600 kilometers was to be laid by 2012, but Hibernia had problems: the main one was the problem of cyber security , which was caused by the Chinese contractor Huawei. Project Express resumed operations in July 2013, and, thanks to Herald Business , we know that a British cable management station is located in Brin (by the way, recently the Federal Communications Agency, the US communications regulatory authority, granted permission to access Hibernia LLC to KCK Limited ). So all traders using microwave to get to Cornwall have a small problem: Bryn is not in Cornwall, but in Somerset; this means that all routes of radio-relay communication lines from London (or Dover / Swingate) to Cornwall will in a sense be absolutely useless:



But I made another mistake. Various industry informants (and one journalist) told me that Hibernia would not give permission (at least for now) to install parabolic antennas at the station in Brin. I tried to find out more about it, but the only answer was “ if you want, trust, if you want, no .” People know, but do not speak. I sent a letter to Hibernia, but received no reply. Later, other informants said that Hibernia could finally agree to install antennas in Brin.

Anyway, whatever of this might be true, as I explained earlier, various competing HFT companies were waiting for the Project Express cable and ordered licenses / frequency ranges on different towers between Slough and Brin. In the end, I found out what the exact location of the Project Express cable laying station in Brin would most likely be; it will look like this:



Then I turned to my map, and this is just incredible ... Guess who owns the Ofcom license right on the site of this station? Jump Trading:



The Ofcom license was issued on July 24, 2013, that is, 4 months after the cessation of work on Project Express (due to Huawei) and 13 months before their renewal. Interesting timing. Hibernia announced that the new cable will be available from September 2015. If the company installs its antennas there, then the future of microwave links in Europe may be linked to Brin. Wait and see.

Future, part II: End of the neighborhood?

Trading firms need communication networks only for the reason that trading centers (engines that reduce buyers with sellers) are widespread throughout the world. That is why some companies need to transmit microwave signals between Chicago and New York, or between London and Frankfurt, some - to lay optical fiber between Europe and the United States, or between the US and Asia, etc. It's all about geography. At the end of my book, I briefly summarized all these issues, mentioning a theoretical article by Alexander Uissner-Gross (Harvard / MIT) and Cameron Freer (MIT) entitled “ Relativistic Statistical Arbitration ”, published in 2010 in the Physical Review .

I will not go into the details of statistical arbitrage (I will discuss it in my next issues), the article is interesting with its ideas about trading and space. In short: the trading algorithms are now in close proximity to the exchange machines / engines that bring buyers and sellers together (the neighborhood is in data centers), so orders are executed faster (in about 200-500 microseconds); but, nevertheless , data must be transferred from one exchange to another. Uissner-Gross and Freer tried to imagine a world in which the algorithms would be located at the intermediate nodes between the exchanges, that is, at the optimal or mid-points between the two trading centers.

"The server can be installed at calculated points or nearby so that the delay time of information distribution between the server and the first trading center, in fact, will be equal to the delay time of information propagation between the calculated point and the first trading center."

The authors calculated the optimal locations (nodes) for “all pairs made up of 52 major exchanges”, marked in blue on the map, red dots - exchanges (note that the article was published 5 years ago, since then the position of some red dots could slightly change ):



I really wanted to present trading servers floating in the middle of the ocean, so I decided to place both underwater fiber-optic communication lines around the world and nodes on the map of Wissner-Gross and Freer on the cover of my book. Here is the “European” part of this cover:

"Please note: while some nodes are located in areas with high density of fiber optic networks, others are in the ocean or other loosely connected areas, which ultimately can contribute to the development of trading infrastructure with low latency in such remote but advantageous locations "- write the authors.

While I was writing this post, I realized that this theoretical study might not be so theoretical. Indeed, on January 21, 2014 at the Massachusetts Institute of Technology [Eng. Massachusetts Institute of Technology, MIT] The United States registered a patent with the title “System and Method of Relativistic Statistical Securities Trading,” and the names of the “inventors” were Alexander Uissner-Gross and Cameron Freer.

Here is a practical addition to their 2010 article with many details about what the future of trading could be. "The system may consist of a processor configured to calculate the location of the server, which will be located on the communication line between the first and second trading centers, at least partially located on the communication line . " This system would be better than the neighborhood:

“Placing the server at a point on the communication line between two trading centers in such a way that it shortens the propagation delay time when conducting“ distributed ”trades, possibly, will allow to carry out such transactions more often, and also to perform“ distributed ”high-frequency trading at a higher speed than using the traditional approach, in which the server is located in one of the trading centers. "

Here is one of the schemes presented in the patent:



Since the servers 116 must communicate with the exchanges 102 and 110, they must be in the data network 104 at point 108.

“In some embodiments, communication network 104 may be wireless and use any suitable wireless technology to ensure the transmission of information without the use of wires. Communication network 104 can transmit information using electromagnetic waves of any appropriate frequency. For example, you can use frequencies from the radio, microwave, visible, infrared or ultraviolet. Communication network 104 may cover any wireless information transmission technology, including satellites, transmitters, receivers, antennas, repeaters and / or radio stations. "

“It would be too easy to install pre-programmed computers on both sides of the connection, ” said Uissner-Gross in this interview, and the result of the neighborhood would be “ an arms race to reduce the time delay between two points. The next step is to install [trading algorithms] in the nodes . ” I remember my conversation with the CEO of one major supplier of microwave radiation between Chicago and New Jersey; I learned that most of this company's microwave customers are required to collect data from one exchange (say, CME [ Chicago Mercantile Exchange - Chicago Mercantile ] in Aurora) to transfer a warrant to another exchange (say, NYSE [New York Stock Exchange - New York Stock Exchange] in Mahwah).

This means most HFT companies need super-fast networks to know what is happening here and there, and related algorithms can make decisions about buying and selling goods on the spot based on this data — for example, the algorithm in Mahwah should receive information about what happens in Aurora with E-mini S & P (ES) futures so that it can trade SPDR S & P 500 ETF (SPY) in Mahwah. That is why the data should be moved as quickly as possible between the two exchanges - because of the "arms race".



If you are a trader or a client of the McKay Brothers radio relay communication network (as they say, the fastest), the minimum delay time that can be obtained between Mahvah and Aurora will be 4.062 milliseconds. In short, the idea of ​​Weissner-Gross and Freer is to locate trading algorithms somewhere in the middle between Aurora and Mahvah (at the node), so these algorithms can get data for ± 2.031 milliseconds (this example is theoretical, and most optimal locations nodes, generally speaking, do not coincide with the middle points of the paths (see patent). Since the authors registered the patent, and after they “ negotiated with financial companies for the transfer of rights to [their] method ” in 2010, I suggested that their “System and Method of Relativistic Statistical Securities Trading” a number of practical applications, so I wrote to Wisner-Gross and Freer to learn more about it.

They responded politely, but " at the moment could not say anything about it ." What a pity! But a few days later I received a reply from them and realized that in 2011-2012 both Alexander Uissner-Gross and Cameron Freer were members of the commission of experts in a company called ... Hibernia. Isn't that amazing? I was curious, for the sake of laughter: if the system has a potential benefit for trading companies, if the fastest connection is made using a network of radio-relay communication lines and if the servers / trading algorithms should be on this line, this would mean that the algorithms can be placed on the towers, it is so? Considering that Belgium is in the middle of the London-Frankfurt route, this means that in the future my neighborhood may be occupied by trading algorithms ...

Future, part III: Balloons or tropospheric radio?

“If the trading centers of New York and London were connected by a trans-ocean fiber cable, it would be extremely difficult and expensive to place a server somewhere in the ocean ,” write Uissner-Gross and Cameron in a patent document. Therefore, the question arises: how to place the server in the middle of the ocean? On a floating platform?

Today, a trading company can use networks of radio-relay lines of communication between two points on earth, but it’s impossible to build a network with signal transmission within the direct line of sight between the UK and the USA - if you don’t create any floating islands in the Atlantic Ocean, it would be too difficult. That is why, at least for the moment, there is no other solution than to stretch the fiber optic cable across the ocean.

However, on September 23, 2014 in PR Newswire, it was announced that Windy Apple Technologies (WAT) plans to “ create a transatlantic service using advances in equipment design and non-standard platform deployment methods . Plans include the creation of high- and low-speed networks for low-latency connections between New York and London, which gives WAT the opportunity to both be first on the market and to make much more profit than transatlantic optical systems worth several billion dollars, the installation of which competing providers are currently engaged . ” What is meant here?

“We take special pleasure in turning incredible ideas into probable ones ,” said Alex Pilosov, CEO of WAT, who formed the first network of radio relay links between Chicago and New York earlier in 2010 (only a month after the launch of the Spread Networks cable). Someone from the HFT / microwave industry said that " Pilos is like a typical Russian engineer who can build a space rocket using two pieces of chewing gum ."

Unfortunately, both WAT and PR Newswire do not reveal most of the details of these plans. " The company's internal R & D program has thoroughly studied [...] methods for locating transmission platforms using aircraft, balloons and satellites ." The key word is probably the word balloon: at a conference in Paris last December, CEO of McKay Brothers Stefan Tych said that the networks of radio relay lines required by HFT companies will remain the fastest technology in 4-5 years while Google balloons will not replace.



Honestly, I don’t quite know how to build a network using balloons, but it seems to me (to put it simply) that the signal would be sent from an antenna placed at the top of a single exchange and received by an antenna placed on a stratospheric balloon, and then the signal would be sent back to Earth to another exchange. Will one high-altitude balloon be enough to cross the Atlantic, given that the earth is in the shape of a balloon? It is very doubtful (but such a balloon would be an ideal location for servers above the ocean if the Wissner-Gross and Freer system is ready for use).

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