Getting Past the 100-foot Cable
September 21, 2009
Outsmarting the other player and shaving the time it takes to transact an order.
These are the two most fundamental characteristics undergirding healthy financial markets. Including those on Wall Street.
And the idea that you might get an advantage by being the closest player to an exchange's trading floor is hardly news.
"The issue of proximity generally is as old as the hills," said William O'Brien, the youthful chief executive of the untraditional electronic market operator Direct Edge the other night at an Aite Group roundtable on high-frequency trading. "The old floor brokers used to want to get offices as close to 1 Wall as possible, so their runners had a shorter distance to run. I didn't see Daniel Webster making a speech on the floor of the Senate about it, the last time I checked."
Now, of course, electrons do the running and the trading floors are moving out of New York City and into ... gasp ... New Jersey. Cities across the Hudson with names such as Carteret, Secaucus and Mahwah are the future of most share trading on this continent. Senators Schumer of New York and Kaufman of Delaware are sure to be seen paying visits to these scenic industrial settings. Ernie Anastos might even have a fowl suggestion to utter (again) during his local Fox newscast.
After all, to the common mind, the details about how the data centers that house new exchanges like Direct Edge and BATS or more "historic" ones such as the NYSE or Nasdaq are starting to sound like arguments over how to construct a theater of the absurd.
Enter the 100-foot cable. This has become a symbol for the kind of "egalitarian cabling" that the Securities and Exchange Commission might enforce to ensure all players have equal access to exchanges' matching engines in these centers.
"Nasdaq is considering, depending on where you are in the data center, [whether] you might have a speed advantage over the next participant," said Brian Hyndman, senior vice president of Nasdaq OMX. "So do we need to [give] everybody a 100-foot cable so there is equal latency among all the participants within the data center? Does that solve our issue?"
The issue: "equal access" is now measured in time. In the age of electrons, that gets translated into feet. If everyone has a 100-foot cable, it won't matter whether your server is 10 feet or 100 feet away from that engine, your electrons [with your orders] will travel the same 100 feet to get there. No one gets even a nanosecond advantage.
But, like a lot of symbols, that's a pretty simplistic answer to precluding delays or "latencies" that might favor one player's run to the matching engine.
"There are a number of factors that can affect the latency and the cable length actually is just one of them and it's probably one of the smallest ones,'' said David Iles, director of product management for Blade Network Technologies, which supplies switches for these centers.
More important are obvious issues such as the number of "hops" on the path to the trading engine. For instance, you can lower latency - and reduce the number of hops - just by the way you plug a cable into a line card in a stack of line cards in your rack of equipment inside a center, he notes. Or how many ports you choose to plug something into. Plug in 24 cables, and you're okay. Plug in 48 and you lose control of the time it takes to process requests.
