Panel: Firms with Latency Needs Focus Spend on Microwaves, Fat Fiber

While some trading firms are willing to spend whatever it takes to achieve lower latency for market data, the number of firms in a position to do so has fallen as new distribution technologies such as microwave networks and high-bandwidth fiber connectivity increase the cost of keeping pace with the fastest traders, according to panelists at an event organized by datacenter provider Telx.

"Firms are still spending money to get faster between markets," said Andrew Kusminsky, chief operating officer of network provider Perseus Telecom. "We haven't seen a huge slowdown; we've seen a broadening, with proprietary trading firms looking at global markets, and spreading that spend across the globe."

However, the number of firms with the appetite and resources to do so is shrinking, others said. Patrick Lastennet, director of marketing and business development for datacenter provider Interxion's financial business, said there may be only a handful of firms still willing or able to make large investments in chasing microsecond-level latency reductions, while some continental European firms only now realize they still need to achieve sub-millisecond latency, and risk being left behind.

Only a few years ago, that handful might have been 20 firms, agreed Mark Casey, president and chief executive of network provider CFN Services. "Now, that has definitely been cut in half, with firms consolidating [latency efforts] around specific asset classes," he added.

For those that can afford it, the latest solution to offer major latency reductions is radio frequency networks, and though a raft of providers are starting to offer microwave connectivity, the costs involved may put off other established players. "With fiber networks, your capital expenditure is putting the fiber in the ground, but the ongoing expenses are very low, whereas with microwave, you continually have to pay licenses [for radio frequencies] and lease space on towers," said Michael Sevret, chief strategy officer of fiber network provider Cross River Fiber.

One drawback of RF networks -- despite being reliable and well-used in other industries for a long time -- is their limited bandwidth, meaning that firms cannot subscribe to full datafeeds from exchanges, and must be "more precise about what they trade," Kusminsky said.

And though the limitations of microwave transmission are forcing firms to be selective about the data they consume, the bandwidth required of fiber networks continues to increase. "10 Gigabit networks are like T-1 lines back in the day. Now, 100Gb and 400Gb... are the norm. People want dark fiber for flexibility and to be able to ratchet bandwidth up or down as needed," Sevret said.

Casey said there is interest in 40Gb and 100Gb, but current message rates do not require that much bandwidth -- especially in Europe, which does not experience the same data volumes as the US options markets, for example, added Lastennet.