Radio Engineer Files Objection to WIPE
drmnainfo.blogspot.com
drmnainfo.blogspot.com
The race for speed in financial markets has reached a point where no existing fiber optic or satelite based system can compete; the state of the art are short wave radio that bounce back on the ionosphere and enable intercontinental communication at the speed of light over the shortest path and with no intermediary hops. Fiber optics, for contrast, can only do about 2/3 of the speed of light and impose non-direct routes and multiple hops.
Keep in mind that the majority of back-end clearing and settlement of trades in Europe is done by Euroclear [0], who reported over 27 Trillion Euros of assets under management in 2015. In the US, virtually all back-end clearing and settlement is handled by DTCC [1], who reported handling over 1.7 Quadrillion dollars worth of value in 2011.
That’s the scale of the market you’re playing in when you first pretend to arbitrage.
[0]: https://en.wikipedia.org/wiki/Euroclear [1]: https://en.wikipedia.org/wiki/Depository_Trust_%26_Clearing_...
Latency arbitrage is old. Paul Julius Reuter (as in, Reuters) made his first fortune by using carrier pigeons to transmit trade data from Brussels to Aachen. Then he started a new agency and built telegraph lines.
Rice traders in Japan used boats/smoke-signals/runners to transmit information between rice markets in 1700s
https://digital.sandiego.edu/cgi/viewcontent.cgi?article=111... pages 15-22 has more examples.
Even if I saw HFT as a valuable thing (I don't), it's unfair to create a new exemption for these people just because they have money. And if you suggest that he government shouldn't be involved, then keep in mind the only practical force stopping someone from jamming these transmissions is the exact same government bandwidth allocation guidelines.
This should not be understood as an infight by HFTs. It should be understood as the radio waves of the world being a public, shared resource and folks asking, "Are we changing these rules now?" If so, it should be done equitably.
The problem is it's not about you or me tolerating the special exception or not. It's about recourse, and we have none.
> a new exemption for these people just because they have money
The people with money can donate to all the politicians and make them aware of their needs, in exchange for the donations continuing. That's their recourse.
> This should not be understood as an infight by HFTs.
But that's exactly what it is. Multiple entities with money lobbying the same government for favorable results.
>the shortest path
That's effectively the opposite of shortest path. If you really want the best performance you'd set up a line of microwave links.. I'm not sure how much latency the hops would add but if you have fast enough gear, it's probably not enough to justify going all the way up and back down.
Good luck setting up a microwave link between New York and London that will be faster than a short wave transmission.
i've prototyped that. :)
If you want to reach a receiver a hundred miles away an HF bounce off the E layer would get there in 0.659ms (if my math is right). If you had a 100 mile long fiber optic cable your signal would get there in 0.813ms.
Microwave repeaters can be very fast so long as you've got good positioning. If you managed a straight line of repeaters to a receiver you might be able to beat the HF path. For the best results microwave repeaters shouldn't be too far apart so for the hundred mile trip you'd want several repeaters. Each is going to add something like 150ns latency. This is cumulative with the 0.97c air latency. And it's only to a single receiver.
So microwave repeaters would beat HF sometimes, depending on topography, to a single receiver. I think HF would end up winning out more often than not and wouldn't require the infrastructure of the microwave repeaters. It would make siting receivers much easier and would likely allow receiving stations to optimize siting for the last mile to the trading systems.
That being said I don't think HFTs should be able to abuse HF by broadcasting things not usable by the general public. If they want to cut their latency they can use some of their hojillions of dollars to build microwave infrastructure or pay everyone for use of the HF airwaves they want to make money with.
Use of COFDM for digital radio in the current AM bands, part of the final AM phaseout?
[0]https://en.wikipedia.org/wiki/Droitwich_Transmitting_Station
I haven't kept up on the SW scene in a decade or so, so I may be mistaken.
Make all the data, including the financial data public. But make sure the people you want to see the data can access it first.
Arrange the data in the air so every error recovery block is mixed with financial and non-financial data.
Send the non-financial data out of band, and ahead of time, to your paying customers.
Now when a data block starts being transmitted, the paying customers can combine the non-financial data with the transmitted block (for example with xor) and decide to extract the data they want after just some proportion of the block has been transmitted.
The public have to wait till the end of the block to decode the data, by which time the data isnt valuable anymore.
I am dubtfull this would hold in a court of law.
You could go a step further and publish that scraping+transformation software, too—on Github, even!—but just make it finicky as hell to set up, and with no documentation, either. (I would suggest writing it as a microservice architecture, split up between 1. a network of Ethereum smart-contracts, 2. a BeOS server, 3. a dongle program written for a Java Card smartcard, 4. a LambdaMOO object. Use an exactingly-frail implementation of IBM 5250 for the message bus.)
Such that, in practice, you need installation engineering support from—who else—your company.
Here in the UK we already have data transmission over AM radio[0], nominally for remotely switching electrical equipment on and off but could be used for anything that only needs a low data-rate channel. I would not be surprised if the HFT people are using it.
In US, similar "utility response" is permitted as well for AM broadcasters, since 1981 https://docs.fcc.gov/public/attachments/FCC-81-258A1.pdf
Subsequently, permission was granted to all AM and FM broadcasters for "subsidiary communications" of any kind, https://docs.fcc.gov/public/attachments/FCC-84-113A1.pdf
But that's not "shortwave"/International HF broadcast
Such a rule would slaughter credit-card processors, too. Anyone who makes a market or facilitates a transaction would have a problem.
To expand a bit -- an antidote to HFT front-running is the limit order. If you can buy the thing you want at a price you believe is acceptable, HFT front-runners simply get paid for providing you liquidity. Don't like the price? Set your limit lower.
With regards to frontrunning, the problem isn't that XYZ is trading at $5 and I get charged $5.05 because I put in a market order - or at least, the problI don't think you fully understand frontrunning either.em isn't _just_ that. The problem is that between when I send my limit for $5, the price drops to $4.95. But through whatever mechanism, latency arbitrage, order flashes, whatever, the HFT knows my order is coming in at $5, and they scoop up all the liquidity and sell it to me at $5.
Sure, if I priced the security correctly, $5 is a fair price. But I took market risk and I deserve the reward of buying at $4.95. The HFT, entering and leaving positions only when they know someone is coming, is taking no market risk, and is stealing my gains without providing any liquidity or hazarding the market with the rest of us.
This is a simplification of course, in order to place teaser orders the HFT has to endure some market risk. But they've cranked it down to a rounding error.
Another problem is that the retail brokers have gone to 0 commission by selling their order flow to the same HFTs. What this really means is that commissions are variable, arbitrary, and unknowable. Try putting that in a spreadsheet.
On some occasions, I've bought shares, using a limit order, at $0.95 and immediately posted the limit sell order at $1.05. Throughout, I believed that the company was worth more than $1.05, but set the limit at a price that provided a margin of safety. If someone else agreed, but was willing to pay $1.05 or more for the shares, I was happy to oblige.
When the limit order hit a few weeks later, I took my 10.5% return and went home happy (to place another limit buy order at $0.95). One need not consume all of the value on the table. It is important to leave value for your counterparties, too.
Parasitic parties who skim transactions without providing liquidity are just sucking money from pension funds to transfer to the very wealthy. They're pickpockets.
Edited to add:
When you executed the trade you described, you did so speculatively - you were in the market with the rest of us, you were taking a risk, and when someone wanted to get into the market you were there to sell to them.
That's completely different from holding a position for microseconds when you know for a fact someone is on their way.
In devil's advocate-mode: The HFT trader is still providing liquidity for that person on the way. If someone else were to purchase the shares ahead of the inbound trade, the inbound buyer might not be able to acquire those shares. If the inbound trade were a limit order, rather than a market order, then the HFT trader might not have room to profit.
Sounds like the setup for a B-movie though...
It's not out of the realm of thought!