Laser Beams Speed Financial Trading
In today's capital markets, whoever can send and receive real-time market data the fastest has a tremendous advantage. The incentive to execute financial transactions ahead of the competition means that every nanosecond counts.
When it comes to the financial arms race, or the race to zero latency, traditional data feeds aren't fast enough. The need for speed has ushered in a new breed of blisteringly fast communication systems, and the latest weapon of choice is the laser.
Anova Technologies, a Chicago-based communications company, is betting on the laser to overcome some of the disadvantages of another low-latency data-transmitting technology, microwaves, which are affected by weather and don't have as much capacity.
In the last decade or so, high-frequency trading firms, which now make up about half of the trades on the stock market, sought out faster and faster network options. First they moved to custom-built fiber-optic cables, then on to microwave and millimeter-wave transmissions. Currently networks made up of all three technologies connect exchanges around the United States, while fiber-optic cables laid across the oceans link international markets.
In March, Anova plans to switch on an array of laser devices connecting the New York Stock Exchange's datacenter in Mahwah, New Jersey, with the Nasdaq Stock Market's datacenter, which is located 40 miles to the south in Carteret, also in New Jersey and just across from Staten Island.
The technology was originally developed for U.S. military jets for in-flight communication. Anova worked with wireless communication specialists Aoptix to create a commercial solution.
"We've taken an infrared laser beam, known as freespace optics, and we've combined that with traditional radio frequency technology – stuff that you use on your cell phones – to create an integrated system with a beam the size of a human hair, and we're sending that over 15 kilometers at a time, broadcasting information," Anova CEO Michael Persico explained in an interview with MoneyBeat.
The speed advantages of the laser-based approach are two-fold, according to Persico. First of all, light going through air is one-hundred thousand miles per second faster than light going through fiber, and secondly, lasers operate in a direct line, essentially enabling the shortest path between two points. Fiber solutions, on the other hand, take a circuitous route around backyards and through mountains and other natural obstacles.
The race to transmit data at practically the speed of light continues in the face of new regulations aimed to slow things down. HFT and algorithmic trading has been subject to criticism that it gives users an unfair advantage. It has also been blamed for market volatility and market glitches like the "Flash Crash" of 2010.
Persico countered claims that HFT has been a destabilizing force. "This is just part of the market evolution," he said. "The whole world is accelerating. What you need to do is correspondingly accelerate the entire ecosystem that surrounds the technology that's advancing, and so there's a responsibility to make the rest of the markets faster to keep up with this."
In fact, the CEO was adamant that this is a broad technology, not just a narrow tool to be used only for HFTs. "We're doing this to democratize access," he said, noting the other aspect of these lasers is that they have a capacity that is almost equal to what fiber can provide.
"We want to provide high-speed to everyone, thus leveling the playing field, thus making the markets more efficient, because everyone, including the retail investor, has access to it," he added.