$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...

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!

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.