High Frequency Trading Next Door - Part V (Getting Started)

Note transl .: This is the first of two final parts of the material “High-frequency trading in the neighborhood”. In this part, the author will tell in more detail about how NATO communications lines in Europe, which had strategic military significance for the United States, eventually began to be used by high-frequency traders, and what is common between modern communications lines to transmit exchange (and military) information, a communication system that Napoleon used at Waterloo, and the ancient Greek method of exchanging data at a distance.

Introduction: Arms Race and Information Transfer

The story is quite famous: in 1815, in order to be the first to know about the end of the Battle of Waterloo, the English banker Nathan Mayer Rothschild used carrier pigeons. Pigeons easily crossed the English Channel (they are not afraid of their reflection in the water), flew to London and informed Rothschild of Napoleon’s defeat, and the banker thus “ hit the jackpot , buying up British securities”. According to official figures, Rothschild made a lot of money because he owned the fastest technology for transmitting information (pigeons), but this is not so: another part of the story (almost unknown to anyone) is that Napoleon had a technology that transmitted information faster than that could have been made by someone from the pigeon family: Shapp's telegraph ( more about the storyhigh frequency trading is described here ).

In short, this “optical” or “air” network, invented by Claude Chappe , consisted of various semaphore relay stations transmitting information throughout France: Such networks were considered “optical” in the sense that semaphores were used to transmit signals between two points in limits of line of sight (as in microwave communication lines in our time); this explains why the stations were located on existing elevations (in the hills, for example) or, even at that time, on stationary towers. Napoleon’s army was a very unrestrained client of Chappe, and the emperor invested a considerable amount in the network, so the news of the defeat at the Battle of Waterloo should have reached Paris earlier



Of London. But the pigeons of Rothschild won the race. Why? Fog, my friend! On June 18, 1815, the fog beneath Waterloo was so dense that Napoleon’s soldiers were in turmoil, and Chappe’s network was completely out of order: because of the fog, it was impossible to transmit the signal from Waterloo to the stations in northern France - nothing could be seen. Here is the failure. The story is unusual in that fog is still a problem for modern networks of HFT (microwave) communication lines, two centuries after the defeat at Waterloo. Technology may change, but nature, however, remains the same.

At the end of the war, there were always problems with delays. Greg Laughlin, who worked on modern ways of transferring information between New York and Chicago (from optical fiber to microwave lines), on his blogwrote about the ancient and mythical transmission of data: "news of the defeat of the Trojans that were transmitted to Clytemnestra’s plotting plot intriguing 400 miles from Sparta within one night." In Agamemnon Aeschylus you can read the following: “Hephaestus, who sent fire from Ida. / Fire to fire, bonfire bonfire news / Transmitted. The Idea replied with a flame / On Lemnos, the cliff of Herme. To the island / Mount Athos, Zeves' house, answered " etc. The signal was a flame, and since Aeschylus gave the names of “stations”, Greg was able to indicate on the map a network 600 km long from Troy to Mycenae:



The longest route over the sea is 177 kilometers (from the famous Mount Athos to Candillon [ English Kandilion]), and most stations are located on high hills or in the mountains. If you zoom in on Mount Ieraneya Jeraneia], then guess what you can now find there? Awesome modern metal tower:



I repeat, technology can change, but one way or another, they must take into account the unchanging features of nature.



“Given that the message transmitted one bit of information, the coding of the signals was carried out at the Shannon border.”

The Past, Chat I: Houtham, From US Army to Jump Trading

To begin with, what made me start researching the microwave communication network networks used now (or in the future) by HFT companies in Europe from London (Slough / Basildon) to Frankfurt. The Bloomberg article that initiated my investigation was entitled “Wall Street acquires a tower from NATO to send microwave signals in pursuit of speed” - here, “Wall Street” refers to Jump Trading LLC , one of the leading players in the Chicago market who bought this tower in Houtem, Belgium. This tower (for details, see Part II ):



Before starting to hunt for other towers, and then to make a map of high-frequency trading in Europe, I checked the authenticity of the history of this tower and soon realized that this tower with extensions was not built by the NATO bloc and not for him (despite this that parts of NATO were nearby). Bloomberg was right when they wrote in an article on the US Armed Forces , as this tower is part of a curious story about the early microwave links built by the US Army in Europe. Trying to give a general idea of ​​the history of military communications networks is quite difficult (because of the so-called “defense secrecy”), but perhaps the beginning of the story is this “ Agreementon the use of certain telecommunications equipment between the governments of the USA and Belgium ”of April 19, 1963.

Article 1 says: “The Belgian government authorizes, ratifies and confirms the installation, operation and maintenance by the US government of telecommunications facilities in Flobeck and other cities, according to the current and possibly subsequent agreement of the authorities of the United States and Belgium, respectively . ” This means: in 1963, the United States began installing various microwave communications lines in Europe as part of the Department of Defense’s communications system . Defense Communication System, DCS]. It does not mention the tower in Houtem, but it is surprising that the name Flobeck (a small town in Belgium) is mentioned, because in 2015 different competing HFT companies ( Flow Traders , Jump and, possibly, Optiver) installed their antennas on this old military tower : The US Department of Defense communications system had a number of facilities in Belgium, Greece, Italy, Portugal, Spain, Turkey, and the United Kingdom, and this system consisted of a combination of radio relay links to a satellite. These networks were not built in a few fractions of a second: thanks to Julian Assange and WikiLeaks from the declassified telegram (dated April 6, 1973 with the heading US Microwave Link System in Belgium), you can find out what



“The original deadline for completing the construction of the microwave communication system was May 1973, but we understand that the terms of the agreement are currently being reviewed by the general contractor in order to set a new deadline for late 1973 or early 1974 [...] we must receive copies of reports on a visit to the facilities dated January 2, 1973, containing a plan of completed and incomplete work at six of the seven facilities in Belgium (Houtem, Westrosebek, Flobek, Chapes, Le Chenois, Ben Achin) . ” This is the first mention of a tower in Houtem. From here you can find out that the Belgian part of the US Department of Defense communications system has been in working condition since mid-1974 (this confirms the data with the assumption that the Houtem tower was built in 1973).

From bookThe U.S. Armed Forces and military installations in Europe , published in 1989, you can find out that the U.S. Army had 19 structures in Belgium (military depots, utility rooms, etc.), including these three towers:



Looking a little more, you can find some old maps of the U.S. Department of Defense communications system with towers in Flobeck and Houtem marked on them: These documents are interesting in that you can link the Houtem tower (which Jump now owns) to the tower in Flobeck (which Jump is located next to Flow Traders). You can see how HFT companies from Flobeck (Belgium) to Swingate (Great Britain) use the former communications system of the US Department of Defense: Under the control of the US Army was another network of microwave communication lines, called "







European tropospheric radiocommunication system. ” This is simply amazing, because part of this network runs from Flobeck to ... Frankfurt! This fact made me think about HFT towers in Germany, since there are no public data on them in this country. I put troposphere communication routes on my map (in the picture below) and wanted to find out 1) whether the Custom Connect route passes through Prüm or not, and 2) whether all competing companies in Simmerat (McKay, Jump, Vigilant, Optiver and Latent) use it after transmitting a signal to the Weyburn tower in Feldberg , just 20 kilometers from the Equinix data center in Frankfurt, which houses the Deutsche Bourse / Eurex engine, bringing buyers and sellers together:



On the other side of Flobeck, the Houtem-Swingate route seems to have aroused interest, because crossing the strait is rather difficult (fog can interfere, one has to deal with the fact that the signal is reflected from the surface of the water, etc.). At least three scientific articles were published on the subject of these difficulties, the first in 1979 by the Information and Technology Center of the US Department of Defense, Requirements for Delays on the Houtem-Swingate Communication Line . The second article, released in 1979 by the US Department of Commerce, Distribution of signal levels and signal fading analysis for a 5 GHz microwave link across the English Channel , describes“Using the results of research and measurement of signal fading on a microwave communication line 88 km long, passing through the English Channel and operating in the frequency range from 4 to 5 GHz with multiple signal spacing within the line of sight ” (Jump now uses a frequency of 7.470 GHz, to cross the strait). The fact that (at least) three old technical articles dealt with the problems of microwave communication lines that arise when crossing the strait can probably explain the “ huge number of speculation cases ” that I mentioned in Part IV when HFT providers decided to lay their routes of microwave communication lines in Europe around 2012.

According to thisA document published in 1996 by the United States Air Force General Directorate, the Defense Ministry’s communications network was modernized in 1979 and renamed the European main digital communications system . Digital European Backbone, DEB ]: “The European Basic Digital Communications System program replaces current U.S. Department of Defense analogue microwave communications equipment in Italy, Germany, Belgium, the Netherlands and the UK with digital microwave encryption equipment”; in 1988, Phase III expanded the range of digital services facilities from Belgium to the UK. In addition, this line provides connectivity of digital communication channels, forming a digital communication system with fourfold diversity within line of sight, and also allows communication through the English Channel ”- This means that in the 1990s the US Army still used the Houtem tower.

According to another document published by the Department of Defense, in 1999 all towers in Belgium were still owned by the United States. However, on January 20, 2006, the Ministry of Defense announced “a decision to deactivate and return to Belgium three radio relay facilities. Object locations: Houtem, Westrosebeke and Flobek. The United States no longer needs these facilities, since the services of the radio-relay communication system system created in 1996 will be replaced by services of more efficient and cheaper commercial communications, ” that is, fiber-optic cables. “Waiver of these facilities will result in annual savings estimated at $ 84,000.”

So ... in 2006, three towers were returned to Belgium, but soon my country realized that these towers are expensive and worthless. The tower in Westrosebek was demolished; The Belgian Ministry of Defense used the tower in Flobek, but thanks to this document, we know that the radio was turned off ... two weeks ago, on January 1, 2015; and in 2012, Belgium decided to sell a used tower in Houtem. I talked about the rest of the story in Part II: On December 18, 2012, a grand auction was held in Houtem, the Belgian government set a starting price of 255,000 euros, but HFT-providers of microwave radiation competed among themselves, and Jump Trading succeeded in this fight and acquired a tower in January 2013 years for 5,000,000 euros (and also spent another million on the reconstruction of the structure). This is how the old American tower with extensions installed by the US Army in Belgium in 1973 was bought by an American company 40 years later. A striking detail: the U.S. Army returned the tower because the new fiber optic cables were more efficient (in terms of bandwidth), and the U.S. company soon acquired the tower because microwave radiation was more efficient than the optical fiber (in terms of delay time). What an irony of fate!

The Past, Part II: The Neighborhood of the US Army and NATO

The NATO bloc never took part in the construction and did not own a Houtem tower. But, nevertheless, NATO has something to do with it. Under the control of the North Atlantic Alliance, among other things, there were various radio communication networks, and one of the main ones was the NATO Allied Troposphere Communication System in Europe ACE High [ eng. Allied Command Europe High ]. The network was created around 1956 and decommissioned in the late 1980s. Take a look at the map:



The network went from Turkey to Sweden through France and the UK. However, in 1966, Charles de Gaulle announced " withdrawal from the very center of the NATO bloc, stating that participation in NATO military command undermines the independence and sovereignty of France". This means that radio networks could no longer use towers in France. The organization decided to go around France, creating new routes in Italy, Germany and Belgium to get to the UK. Below is a map of the “detour routes” that were used after 1966 (marked here in blue and green):



Due to the actions of Charles de Gaulle, NATO needed to build a tower in Belgium to cross the English Channel: this tower, marked on the map as “BADZ”, located in Adinkerk, 8 kilometers from the Houtem tower (it still stands there):



Another amazing fact about the NATO network: in one of the subnets (in the "microwave relay system of the microwave range of the Central European Air Force"), a tower was used in Barack de Fretur (in eastern Belgium). Guess what from this year can be found on this tower? Antennas for the HFT Microwave Provider, Custom Connect . There are many other interesting details about these old towers, but they would have taken too long to talk about. Just note that for geopolitical reasons, the networks of NATO and the US Army had to converge in Mons (Belgium), where the NATO Allied Headquarters in Europe, one of the NATO Allied Strategic Command units, moved after France left NATO. This kind of interconnected network was called ... " neighborhood". And last, but not least: the endpoint of the NATO and US Army networks was Turkey, that is, both networks passed through Greece, and so the networks of microwave communications lines of the 20th century (indicated by green and blue in the picture below) almost coincided with the ancient mythical Troy-Mycenae flame transmission network in the mountains of Greece: To be continued ... PS If you notice a typo, mistake or inaccuracy in the translation, write in a personal message and we will quickly fix it.