Speed Is Of The Essence In High Frequency Trading — HFN

    Somewhere in northern New Jersey, Hudson Fiber Network has cut nearly one kilometer from its fiber route, giving it the fastest time to deliver trading information from the NYSE, according to its CEO, Keith Muller.
    That’s because the NYSE operates from a data center in Mahwah, NJ, up against the border with New York. It has to communicate trading information to other New Jersey-based exchanges such as Direct Edge in Secaucus, NASDAQ OMX in Carteret and BATS in Weehawken.
     Traffic going to the futures exchanges heads west, not to Chicago but to the CME Group’s data center in Aurora, IL, west of the city.
    HFN built out the link to Mahwah in anticipation of NYSE’s opening up its data center to multiple carriers. The prior legacy routes had higher latency, Muller said.
    “We built a route that was designed to cut down latency and cut down hops to connect with the other critical data centers and exchanges in this area.
    “We recently took out a jag in the route just south of Mahwah. We were able to straighten it out a bit through some private easements and pull the fiber in a more direct fashion.”
    HFN has also put in fast connections between Cermak (the old CME data center) and Aurora. Cermak is still a major hub with a lot of gear, Muller added.
    “So people aren’t going to uproot everything.” The new data centers are expensive for co-location, he added, so users will often take fewer server racks into the new exchange facilities and keep more processing power at less expensive centers.
    Fanancial firms  are looking for shorter direct routes and redundant routes. Latency isn’t as critical on the backup route, he added.
    Trading houses want primary and backup terrestrial fiber, added Muller, although HFN is also workinng on RF or microwave links between some New Jersey centers. They are fast, but not reliable enough to be the sole methods of communication since they can suffer interference form bad weather or birds.
    Despite its Hudson Fiber name, the company is based in Paramus, NJ — the state’s shopping center capital, and closer to the Hackensack River than the Hudson. But hey, what’s in a name besides branding? No plans have yet been announced to renamed NYSE for Mahwah, or CME for Aurora, after all.
    HFN is a partner with Spread Networks, which in 2010 built a custom fiber route linking Carteret to Chicago’s South Loop, cutting the round-trip time by three milliseconds to 13.33 compared to other routes that tended to follow railroad lines.
    “Spread uses us for last mile connectivity because we have a dense footprint here,” Muller explained. “They have long-haul routes and come to us for local access.”
    He thinks financial institutions have reduced their emphasis on the fastest speed available.
    “Spread may not be getting the premium for Chicago they once did,” he said. “Financial institutions won’t pay through the nose for lower latency.” Many are content to be within 10 percent of the peak speeds available because they are using trading approaches, such as algorithmic trading, that don’t rely purely on speed.
    “When the market developed it was the fastest trade wins and then it got more sophisticated. Algorithmic traders don’t have to be the fastest, as long as they are up there in speed,” he said.
    HFN has master service agreements (MSA) with more than 50 percent of the big financial firms, he added, so when it rolls out a new service it can offer firms a trial without going through all the legal hurdles that a newcomer would have to deal with.
    “That makes it easier to propose a new product, bring a new solution. The firms tend to buy from the carriers and vendors they have MSAs with, and we have been able to leverage that in our growth”.
     Brett Diamond, president of HFN said: “Our customers have overwhelmingly selected to automatically upgrade to the new route, which we have been able to provide at no additional expense.”

About Tom Groenfeldt

I write - mostly about finance and technology, sometimes about art, occasionally about politics and the intersection of politics and economics. My work appears on Forbes.com and and occasionally in The American Banker and Banking Technology in London.
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