(Bloomberg) — Two key competitors in the technological arms race thats driving financial markets ever closer to light speed have called a truce.
KCG Holdings Inc., a brokerage with roots in high-frequency trading, and World Class Wireless LLC will unite their networks of microwave towers, connecting major market centers around the globe, according to a statement released last month. WCW, which is owned by ECW Wireless, has the same address and senior managers as high-frequency trader Jump Trading LLC. A representative for Jump said the firm declined to comment.
The joint venture called New Line Networks LLC will pool the companies microwave infrastructure to try and create a dominant, global network. The willingness of trading companies to use networks operated by their competitors shows that controlling costs has become more important as the industry matures. Its a sign firms are tiring of being locked into a race to find a technological advantage regardless of expense.
Its starting to hit the pain point, said Rebecca Healey, market structure analyst at Tabb Group LLC in London. The level of investment that you need to make an order stay ahead of the game — can you do that independently? You are going to have to work with others, to let them specialize.
HFT firms need the fastest available technology because their trading strategies rely on speed. Exchanges house their systems in data centers in cities around the world, from the suburbs of Chicago and New York to Frankfurt. They let trading firms keep their computers nearby.
Transmitting data via the dishes on microwave towers helps traders get pricing information as quickly as possible.
Logical Next Steps
Youve got what I would describe as the industrialization of the HFT space, Healey said. They cant be the best at everything and need to find specialist partners they can work with. Its one of those logical next steps that the industry has to take.
Trading firms have traditionally protected their trading strategies by keeping their activities secret. That instinct led some of them to build their own microwave systems. They include Flow Traders, Optiver and Vigilant Global, according to Alexandre Laumonier, who tracks public records on the networks for his Sniper in Mahwah blog.
Other firms have turned to third-party suppliers, such as McKay Brothers International SA, Custom Connect BV and Perseus Telecom.
The creation of New Line Networks may mean that HFTs will buy microwave services directly from a competitor for the first time, Laumonier said.
If they mix the best of their paths and towers, they could be a really big competitor, he said.
