MARKETPLACE
Perhaps not surprisingly there is a latency arms race Parallel this with the early days of multi bank FX
afoot. Who has what connection speed and at what price feeds. Once best bid and best offer were on the
price? When the slightest of delta makes an enormous screen for all to see, multi-bank platforms became far
difference to the algo model. A non farm payroll more compelling than single bank feeds from a proof
250+ milliseconds across the Atlantic is no longer of best execution and price point of view.Those
acceptable when 69 milliseconds round trip is systems naturally saw their transaction volumes grow.
available and 66
milliseconds is about The same is true here.
to go live. Let alone If I have a choice of
180m/s Tokyo to average speed pricing
London, 10.8 and highest speed
London to Frankfurt, pricing, I’ll take the
15.98 New York to high speed, and I’ll
Chicago…. the list want more of it please.
goes on. Add to this the
renewed fears ofAnother curious side
counterparty riskeffect of low latency
brought about by thetrading in FX is the
likes of Lehman, Bearbuyside appears
Sterns and AIG etc,happy to pay for it.
and I think the creditIf I have to pay for
departments around10 leased line circuits
the world might justto connect to my
be interested inliquidity providers at
spreading the riskcirca $200,000 a year
around a few more– I’m going to push
that back onto the venues as well.
broker or bank if
they want my If it takes hours not
business. But, if I months to turn up
can achieve all ten, new high speed
much faster on one connectivity, then the
high speed pipe, for bank, the broker, the
the same cost of one buyside, and perhaps
leased line. Then I even the prime broker
will take control of should have interest in
my connectivity and that. Lower latency,
pay for it myself. less slippage and more
Almost as if high liquidity certainly
speed connectivity sound like an
were an asset in its improvement.
own right. This has
raised an eyebrow or two, including my own and is Only time will tell how the move into low latency, or
perhaps the foreshadowing of a more important rather, high speed trading will affect the FX market,
potential change in the market. but it might just solve the question of where is the
Foreign Exchange?Once you remove the friction involved in setting up
high speed trading lines and the time is takes to
( to add a comment to this story, go to the blog pageconnect them, participants naturally want more
on
www.fxecosystem.com )connections.
|30 october 2009 e -FOREX
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