$300M To Save 6 Milliseconds

whoever57 writes "A new transatlantic cable (the first in 10 years) is going to be laid at the cost of $300M. The reason? To shave 6ms off the time to transmit packets from London to New York. The Hibernian Express will reduce the current transmission time — roughly 65 milliseconds — by less than ten percent. However, investors believe the financial community will be lining up to pay premium rates to use the new cable. The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund."

Comments

Proof that the system is corrupt

[dargaud]

This kind of thing is the direct proof that the way the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?

Re:Proof that the system is corrupt

[Rosco P. Coltrane]

This kind of thing is the direct proof that the way the stock exchange is built is deeply flawed. Why don't they try to build it on sounder bases than "the fastest takes all" ?!?

I heard some european head of state (Sarkozy perhaps) suggest that stock transactions be taxed based on speed, i.e. speculators who buy and sell very fast to make a quick buck get taxed a lot, but real investors who're in for the long run and keep their stock for a long time don't. That sounds like a great idea to me. With a scheme like that, the super-fast transatlantic cable would make speculators be taxed even more heavily.

Re:Proof that the system is corrupt

[Bengie]

Tax starts at $0.01 and doubles every time you do a buy+sell. Counter doesn't reset for 24 hours after your last buy+sell.

When you get these crazy companies doing trades measured in microseconds, this adds up really fast. Think binary. First transaction cost is (2^1-1)*0.01, second is (2^2-1)*0.01, third is (2^3-1)*0.01.. etc.. Those pennies add up. It doesn't stop people from doing short term buy+sells, but it discourages them from doing a bunch of them in a row.

Or something that scales exponentially.

Re:Proof that the system is corrupt

[dkleinsc]

I heard some european head of state (Sarkozy perhaps) suggest that stock transactions be taxed based on speed, i.e. speculators who buy and sell very fast to make a quick buck get taxed a lot, but real investors who're in for the long run and keep their stock for a long time don't. That sounds like a great idea to me.

This concept actually was first proposed in 1972 by Nobel-winning economist James Tobin, with the idea that it would apply to currency transactions to prevent speculators from rapid trading like the kind you're describing. Basically, the concept is that with such a tax in place, traders would have to hold onto the asset long enough that they could pay for the tax, plus whatever gains they were anticipating, so that meant that they'd have to expect to own something for longer than a few minutes. There have since been discussions of applying the same idea to stocks, bonds, mortgage-backed securities, and other assets.

The purpose of that tax isn't so much to generate revenue (although this definitely would happen), it's to slow down the markets enough so that the assets could be properly valued rather than people making money on millisecond-level differences.

Re:Cheaper than a huge flying vacuum

[ArsenneLupin]

Indeed. Everybody knows that light speed is fastest in vacuum...

Re:Blame the market

[Rosco P. Coltrane]

Fractional reserve banking actually creates money. It doesn't create an artificial scarcity.

Yep, it creates money and debases it in the process. So you're correct, it doesn't create artificial scarcity, but it creates real poverty in the long term for those who have a little money.

The giant leach on society

[Puff_Of_Hot_Air]

The entire finance sector fills me with equal parts revulsion and sadness. This is yet another example of enormous resources consumed for no net gain to society. At least in this case something (however unnecessary), tangible is produced as a result. Think of the huge numbers of brilliant mathematical and programming minds that have been consumed by this nonsense! Think of the resources and financial liquidity that is reinvested into this zero sum game! Every hour of work, every employee, every structure erected in praise of this wholly disgusting idol of modern nihilism, makes the rest of our society just that little bit worse. To those who would praise the enabling power of our new financial systems I say Pah! We can create better financial systems within virtual worlds. The only intrinsic value in the financial institutions is the power it gives; and this has been abused for all it is worth! Give me back my engineers! Give me back my scientists! Give me back my hope for a better future!

Re:The giant leach on society

[Puff_Of_Hot_Air]

Give me a team of 20 programmers, 2 years and unlimited political cooperation, and I will give you a financial system with unlimited liquidity, complete security, and a tiny drain on the global economy. The thing you don't seem to get, is that there is no value in any of this. A few bits in a database are equivalent to a good meal; except that they aren't. It's all just a way to help us keep score as we go about doing the things that matter. The problem is that the "game" is now more important than the reality, and we all suffer as a result. If too many people go around collecting the colored beads, and not enough people are growing the crops, then we all starve to death.

Arbitrage

[Fred Ferrigno]

If you're in London and you know 6ms before anyone else that the price of oil in New York just shot up, you can buy oil right now and then sell it in 6ms for a tidy profit.

Zero sum game

[AlecC]

Sadly, the high speed trading for which this is designed is a zero sum game - the extra dollars made by the hedge funds are shaved off someone else.

Banking has a very valid job to do: transferring money from savers to borrowers, aggregating small savings into large investments, and ironing out risk by spreading it over many loans. But these are, fundamentally, decisions made by humans, and such decisions will be made on timescales of, at the fastest, a minute or so. In order to ensure liquidity, and to even out large lumps in the trading,it is useful to have automated system which work on a timescale which is, say, ten times faster. Such banking and trading adds value. and it the reason we need banks. But any trading faster than that is purely profiting from irregularities in the system, and adds no value to the world. So any value extracted by the traders, or used to build links for such traders (as described in the article) is money wasted: a net loss to humanity.

I would like to put a drag on such trading: one which would dissuade high speed trades while not harming legitimate trades, including legitimate spreading of large risks. A nano-tax might do it - and the premium traders will pay to use this cable suggests the magnitude of such a nano-tax.

But this also adds more bandwidth as well right?

[Joe_Dragon]

But this also adds more bandwidth as well right? as well acting as a back up for other cables.

A short history of unfair trading practices...

[thesandbender]

1817 : Major Brokerage leases building on Wall ST!
1836 : Major Brokerage house installs first telegraph!!
1890 : Major Brokerage house installs first telephone!!!
1990 : Major Brokerage house has access to internet!!!!

Sound investing is based on research but it is also based on the ability to react quickly to that information. If a company in the US announces that their CFO has been indicted, then investment firms in the UK are definitely going to pay to get that information and react to it as quickly as possible. Before you could submit bids to the fed electronically, investment firms used to place runners in pay phone booths next to the Fed so they could call them at the last minute and have them get in the best bid. Fundamentally, there is no difference between that and this.
And yes, "black box" high-frequency traders are going to be the primary users of this line but that doesn't mean there aren't valid and legitimate (as far as the average consumer is concerned) uses for this line.

Already Noted in Slashdot

[InterGuru]

by yours truly, here .

I just read an article in Popular Science that almost made me sick to the stomach. The headline says it all "Pricey Transatlantic Cable Could Save Milliseconds, Millions by Speeding Data to Stock Traders".

Here is $400M being spent just to give flash traders a 5 ms advantage in trans-atlantic trading. It adds nothing to the economy, just lets the Wall Street Casino operators skim more money from the economy. I addition, it diverts talent from productive projects.

Never has Matt Taibbi's description of Goldman Sachs, and by extension, all the big banks, as "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" seem even more apt.

Re:New performance metric.

[camperdave]

"...The article suggests that a one-millisecond advantage could be worth $100M per year to a large hedge fund."

I think we now have real proof that life is moving too fast when the metric to measure your performance as a large hedge fund investor is now measured in single milliseconds.

I'm glad I'm not a large hedge fund investor. Think your 30-minute lunch break is shitty? These guys don't have time to blink.

Who'd have thought there'd be that much interest in buying shrubbery?

Re:Cheaper than a huge flying vacuum

[Jawnn]

Congratulations on completely missing GP's (admittedly off-topic) point. Making money off of the buying and selling of money is a drain on the economy. It produces nothing of intrinsic value and, by design, enriches only a lucky few. If you read your history, you will find that the rise of such an "economy" is frequently the harbinger of society's fall from dominance, if not it's outright collapse. And that is most certainly not "a good thing".

Re:How?

[Turken]

Because all high frequency trading does is inflate the cost for those of us who do invest in the "old-fashioned" buy-and-hold manner.

I heard it best described in this way: There's a hot new gadget that's being released today, and you *really* want to go buy one. Unfortunately, as you're walking down the street, some hedge fund investors see you coming and quickly jump in front of the store milliseconds before you get there to form a line at the door. The store opens, the investor at the front of the line buys ALL of the gadget inventory. He then turns around and sells all those units to the guy behind him for a small profit, who sells to the guy behind him for a small profit, who sells to the guy behind him, etc.

Eventually, they get back to you, but now if you're going to buy that gadget, it's going to cost you some significant percentage more to purchase for actual use. And you don't really have any option if you're going to buy one, because every store selling the gadget has a pool of financial sharks circling the entrance just waiting for another "traditional investment" sucker.

In the end, the store doesn't benefit, since they still only sold the item at the normal price, and you don't benefit because you just got your price jacked up. The only beneficiaries are the HFT scum who have played the system in such a way to artificially inflate your costs to their own benefit while adding absolutely no actual value to the product as it passed through their hands. This DOES impact you, because the more of your investment that gets siphoned out by the hedge funds, the less you have left to actually invest in the original stock.