High Frequency Trading Next Door - Part IV

Original author: sniperinmahwah
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Note transl .: This is the penultimate part of a series of translations about high-frequency trading in Europe. In the first part, the author talked about the nature and history of the use of microwave radiation in trading, in the second part he told how (almost secretly) he entered the protected area of ​​one of the Belgian towers on which the transmitting antennas of HFT traders were located, the third part was devoted to “HFT-Piracy” is the relationship between the floating pirate radio stations of the 1960s and modern high-frequency traders. We wanted to make a brief summary of this part, but decided that it was better to give the floor to the author himself.

[ first part ] [ second part ] [ third part ]

During my research (which was more of an exciting hobby than a full-time job), I did not expect to encounter stories on the basis of which I could write a script for the series on HBO or Netflix. The small world of HFT lines is full of surprises. One of them is the only organization that I have not talked about so far: Latent Networks. Thanks to Latent, I learned a lot about how nature (i.e. microwave radiation) becomes a commodity from competing HFT firms.

From Malta to Cyprus and Panama

I began my acquaintance with Latent Networks when I discovered Cartoradio , the website of the French National Frequency Regulator . With the help of Cartoradio, I began to map towers located in the north of France. There was nothing special about Latent - they received their first license in France on February 5, 2013. Since I had not heard anything about this organization, I downloaded the official list of detailed contacts of all active radio companies in France. All HFT competitors are open, in the sense that they have a mailing address and offices with people working in them. The first curious fact about Latent: it turned out that the company was registeredin the Republic of Malta, and I thought it was rather unusual for an HFT organization to be located in a “tax haven”. I asked several industry experts about Latent, and the answers were evasive (however, later I realized that some people know more than they told me first, I think they wanted to read my first posts before providing more data).

At that time (it was approximately mid-July) I found this company in the official Registration BureauMalta companies, but the only thing I dug up is the name of the company and its ID; if I spent a lot of money, I would be able to get a "certificate of registration", where I was thinking of finding the names of the owners of the company ... but instead of them, I suddenly jumped from Malta to Cyprus and Panama. In short: Latent Networks Limited was registered on September 4, 2012 in Malta and located in Sliema. The manager of the company was a man with the Polish name Krzysztof Kubala, working for a company called Taxways Group . Malta Taxways Group has the same address as Latent, but Taxways is headquartered in Warsaw . The Latent registration certificate mentions another company called Alter Domus (a nice name for a tax haven company).

Latent Networks Limited has two influential shareholders: the first is Invest Group Limited, located in Sliema, Malta, as well as Latent and Taxways; the second (and main) shareholder is Batlaw Holdings Limited, a company registered in ... Cyprus. If you search the public siteThe Cyprus Company Registration Department, you will quickly find that one of the directors of Batlaw is Krzysztof Kubala, the person behind Taxways in Malta and turns out to be the CEO of Invest Group; Moreover, the Batlaw business manager in Cyprus is another Pole related to Taxways, Invest Group and Latent in Malta. Confused? Now there will be another tricky move: on November 23, 2013, a few weeks after the registration of Latent, Batlaw shares were transferred from Cyprus to a company called Amicalle Corp., located in ... Panama. And this is a completely different network. SuperMontage Network [SuperMontage is an integrated trading system used on the NASDAQ American Stock Exchange].

If you register in the Public Register of Panama, you will find out that the shareholders of Amicalle Corp. are two other companies, Dubro Limited SA and Aliator SA [sp. SA - Sociedad Anonima, same as LLC], each of which has two identical shareholders: Cheswick Inc. and Eastshore Inc. If you try to find out who heads Cheswick and Eastshore, you will find many directors, managers, etc., who are also directors, managers, etc. hundreds or thousands of other companies. Ladies and gentlemen, welcome to Panama! All these firms are located on 54th East Street - this is a tower of a new type for the world of HFT:


Latent network

The creators of Latent Networks, no doubt, just love tax havens. Panama is their final destination. I suspect that countless companies from this tower are managed by Mossack Fonseca & Co , a large law firm that is “one of seven representing together more than half of the companies registered in Panama,” according to Wikipedia . Back to Malta: I realized that at the same address in Sliema there are several other companies related to Latent: NGN Europe Limited , registered a week after Latent in September 2012 and owned by Latent; and two other companies with the names Latency Engineering Blue Limited and Latency Engineering Green Limited. I am not at all paranoid, but taking into account the Malta-Cyprus-Panama-Warsaw network, the question might arise: why does a high-frequency network of radio-relay communication lines need SuperMontage around the world? I thought such a confusing structure is used only by drug cartels, mafia or banks. Latent's SuperMontage story would ideally form the basis of John Le Carré's novel.


And again Chicago in Belgium

I didn’t think much about Latent when I was trying to draw up my map of communication lines (I just thought that the SuperMontage system in tax havens is quite unusual), but as a result, by chance, I found something. At some point, I decided to check all the French licenses giving permission to cross the border (France-England and France-Belgium), because I wanted to make sure that I had not lost sight of any unknown organization. So I found a document that cannot be found if you search by the name “Latent” on the ARCEP website . The document is here. This is the last license issued to Latent Networks on February 29, 2014, but the application was not filed by Latent; The name of the applicant company is Global Colocation Services LLC. In other words, this is a pretty well-known company from Chicago called ... Getco.


Global Colocation Services (GCS) is a subsidiary of Getco. Getco is now known as KCG.since the merger of the company with Knight Capital last year (Knight crashed on August 1, 2012 due to a small problem with one of its smart order redirection systems). Getco was one of the first high-frequency trading companies in Chicago; founded by Daniel Tierney, a former trader at the Chicago Board of Trade, and former Chicago Mercantile Exchange broker Stephen Schuler. I was delighted to find Getco in Europe, because together with the founders Jump Trading, Tierney and Schuler also located on the famous platform, towering above the pits of the Chicago Mercantile Exchange, as discussed in Part I of .

But how are Latent and Getco related? I did not think that Latent is Getco. I could not imagine that KCG needed tax shelters (all that is needed for US citizens is in Delaware, isn’t it?). I googled the name “Global Colocation Services” in France and Belgium and found that GCS were registered in Belgium (Brussels) on October 25, 2013 and in France (Paris) on November 25, 2013. I have no doubt that these two companies were created to manage Latent licenses. Here's the proof: I found the name Global Colocation in the telephone directory of France. The Global Colocation address points to the tower in Dunkirk, known as the Tour de Ruse, where the “plates” of many HFT competitors (Vigilant, Optiver, McKay, Latent) are installed:



This is what the Tour de Roose looks like, which was originally thought of as a fashionable hotel, and as a result became an ordinary apartment building.

Let's go back to Latent Networks. The fact that Getco / Global Colocation Services uses the Latent frequency range is confirmed by visiting the official website of the UK state regulatory authority for radio communications. Ofcom website has this card , which allows you to find licenses of radio operators. But there is another place called Spectrum Trading". Before high-frequency traders can use microwave links to trade anything they want, network service providers must order and purchase licenses to use the frequency range. In the UK, a license is issued for a route between two points / towers. This license can be sold in such a way that when the radio operator no longer needs it, Spectrum Trading will provide an opportunity to resell their licenses to those who are ready to purchase them. As a natural resource, microwaves are sold - after all, it is a market.

A few days later I discovered a French license in the name of Latent Networks and Global Colocation Services; I guessed that Latent soldtwo British Getco licenses on March 31, 2014. Latent Networks acquired these two licenses to cross the Canal from the Tour de Rousse in Dunkirk to Dover in the UK (which is consistent with the French license). Ofcom was down two weeks ago due to a server upgrade, but when it started working again ... what was my surprise when I saw that on September 23, 2014 Latent sold its Getco licenses:


I suppose that was the reason for registrationGlobal Colocation Services LLC is also in the UK. If you compare the Latent license numbers with the license numbers sold by Getco, you will quickly realize that Latent sold Getco all the way from the Tour de Rousse to the NYSE data center in Basildon (this time, I’m sure that these routes recorded on my map are 100 %;). Shown here is the Latent-Getco network from Germany to Basildon. I know that some towers in Belgium are not indicated, but there is no publicly available data in my country, so I don’t know where Latent could set up their “plates” between the Tour de Ruz in Dunkirk and Encourt in Belgium (I did not indicate the items corresponding to a few old Towers that Latent no longer uses):


Dark affairs near the canal

I will say it again, this does not mean that Getco is behind Latent, Latent just sold Getco British licenses, period. But I thought it was rather strange, because in the world of HFT communication lines there are two types of competitors: trading companies, such as Optiver from Flow Traders, who created their own network for themselves, and suppliers, like McKay Brothers and Custom Connect. They sell frequency ranges to customers (trading companies, hedge funds, banks, etc.), but they do not resell frequency ranges, routes or licenses to trading companies. Therefore, the Latent case is quite unusual: the organization is not a supplier selling frequency ranges, nor is it a trading company. I did not find general data indicating that Latent sold British licenses to companies other than Getco. One way or another, the fact that the first Getco licenses acquired from Latent in March 2014 were required to cross the channel, it should be noted. Even more than I expected.

In the course of my research, I came across a curious public document found on the Ofcom website. Below is a statement made on December 13, 2013 at a meeting of Ofcom partners (here the partners are the operators to whom Ofcom gave the right to speak out on issues of interest to them). A statement was made by Jan Marshall on behalf of Aviat Networks. I don't know Mr. Marshall, but as a regulatory manager at Aviat, he has written several articles on his wireless technology blog. Particularly noteworthy articleentitled "Game Rules: Microwave radiation with low delay in multi-regulation conditions." Remember that Aviat Networks is a technology provider for a variety of wireless carriers, including HFT competitors. “When Aviat Networks helped McKay Brothers LLC build a low-latency network between Chicago and New York,” Marshall wrote, “there were some technical diagnostic difficulties that needed to be dealt with. [...] For all the complexity of this circumstance, its solution turned out to be simple in comparison with the level of complexity of the legislation that we felt when we arrived in Europe to conduct a network with low delays connecting the leading financial centers - London and Frankfurt. [...] When crossing the border there will always be regulatory obstacles when such a transnational network is established.

Two months after writing the article, Marshall used the same words at a Ofcom partner meeting in December 2013. Here is the first part of his statement: “Aviat Networks understands that Ofcom is not going to introduce restrictions on expanding the network at the moment, as the license was issued for a point-to-point link. However, we became aware that organizations that use low-latency networks (HFT companies) received a huge (over 200) number of licenses, and therefore we have reason to believe that this should lead to the construction of the appropriate infrastructure. We are firmly convinced that a huge number of speculations are being carried out in this area, and this, in the end, leads to the "blocking" of key routes throughout the UK. "


All this is very interesting. In short, Mr. Marshall reported to the UK state radio regulatory authority that some HFT competitors required licenses without installing antennas, just to “occupy” the frequency range and interfere with the rest. In other words: you require a larger range of frequencies, so that your competitors can no longer receive them; in this case, they cannot cross the canal, and since they cannot cross the canal, they cannot create a network between Frankfurt and London. It's simple: trading companies need microwave radiation; Without microwave radiation, companies will not be the fastest. That is why there is a "huge number of speculations" near the channel. Mr. Marshall's statement confirms the “rumors” of “occupying the frequency range and occupying the towers” ​​mentioned by Bloomberg. But here, not far from the North Sea, the rumors turned out to be facts. I know for sure (at least) two competitors who have experienced serious difficulties in obtaining the frequency range necessary to cross the channel due to frequency occupation or speculation. The first was a microwave supplier; the second was a prop trading company. Therefore, it became interesting to me: who occupied the frequency ranges? Who tried to speculate on microwave radiation? A few days later, the answer came to my email. It was just unbelievable.

On August 3 at 23.13, at that moment, when I was quietly going to bed, I received a letter with the heading “Latent et al.” The letter was sent via paranoici.orgused by an anonymous sender "to hide his identity by sending emails." Strange, isn't it? I read the first lines of the letter. “What the hell,” I told myself, opening my eyes. But let's start with the last three lines: "Want to know more, give a signal / Happy hunting / Kangaroo badge." The only way to find out what I'm working on at the moment was Twitter. I posted one or two tweets about my research, and I was sure that not one of my informants would send me an anonymous letter. That kangaroo inscription was strange. The signature read: "Kangaroo badge." I began to suspect that my anonymous informant was an employee of Jump Trading. Why? But because - what does a kangaroo do? He is jumping jump]! So I posted an encrypted tweet for the “kangaroo,” but that was stupid. Very stupid. Kangaroo was not an employee of Jump Trading at all. One HFT competitor read my tweet and wrote to me that I was mistaken, adding that one person from Latent Networks on a sweater was wearing a kangaroo badge. Wow. The Kangaroo Badge was not a signature, but a hint. The Kangaroo was the person from Latent that I was looking for. Awesome.

But the most striking in the letter was the first paragraph. Take a deep breath:

“Pay attention to the [Kangaroo]. [Kangaroo] worked for [Company]. [Company] sells a lot of microwave devices to all types of organizations from the vertical of high-frequency trading. [Kangaroo] has access to many, if not ALL routes of each HFT company. [Kangaroo], working for [Company], he founded the company, calling it Latent Networks Limited. [Kangaroo] stole the routes of all companies, and then registered all frequency ranges to occupy them. Its main and possibly only customer is Getco. There is a rumor that Getco has acquired several licenses to cross the channel from Latent Networks Limited. ”

Oh oh oh. Let's pause. My initial goal was to map radio links in Europe. Studying these communication lines, I just wanted to understand how high-frequency traders oppose nature. I looked at the general data and tried to understand this small world, not without the help of specialists in this field who spoke politely and honestly with me. One of these lines of communication was rather unusual, so I decided to search again, but I could not imagine that I would receive a letter accusing the company registered in Malta, Cyprus and Panama of speculating with frequencies near the North Sea. Like everyone who is familiar with the world of high-frequency trading, I heard stories about employees accused of stealing a trading code from a company and taking it with them (the most famous case is with Sergey Aleinikov), but I never thought that it is possible to illegally seize frequency ranges in order to speculate with them. These were tough accusations.

The last two sentences of the letter were quite accurate: Getco is a Latent client, and the “rumor” about the license to cross the channel is a fact confirmed by Ofcom's publicly available data. But I don’t see anything illegal here: Latent could act like high-frequency traders, quickly buying up a rare product (frequency), and then reselling it to those who are ready to buy it - in the end, this is the market. But the words “to ALL routes of each HFT company” are not entirely accurate. The company in which the “kangaroo” worked was not the only one that supplies equipment for radio-relay communication lines (there are others), so I strongly doubted that the “kangaroo” knew all the routes of HFT competitors. Not impossible, but unlikely. What about the theft charges? My first thought was: this is bullshit, someone is trying to confuse me, this is a joke.

Two weeks later, I was about to write, “Latent may have speculated on licenses at the channel crossing, but this kind of anticipation game is not considered illegal.” However, ten days ago, two months after I told my informants about the “kangaroo”, one of them decided to talk and just discouraged me. A competitor told me that as a supplier of equipment, the “kangaroo” “took” one of the routes from him and registered it in the name of a new company called Latent Networks. Despite the fact that “took” does not mean “stole” (I will not go into such subtleties), I learned something from this competitor related to the allegations in an anonymous letter. I could not believe it.

There is something else, but, as Ludwig Wittgenstein once said, "about what you can’t talk about, you need to be silent." I honestly spoke with people from the field of microwave research during my research. I am not a prosecutor, but, digging as deep as I could, I found out about the details that I cannot share because of respect for those with whom I spoke. Let's just assume that maybe I know what happened near the channel before Getco acquired Latent licenses. From what I know, given that at least two HFT competitors had difficulties in obtaining a frequency range between France and the UK, and given speculation by communication channels through the channel, one question arises: at what price did Getco acquire the license to cross the channel previously purchased by Latent?

Me and the Kangaroo

I will not write the name "kangaroo" and I will not write the name of the company in which he worked before moving to Latent Networks. I know that the “kangaroo” knows that I know who he is, however, although it was most interesting for me to study how some networks of radio-relay communication lines oppose nature (waves, fog, water), and not chase after an obscure company hiding in Panama, I think I now have the material for writing the script for a full-fledged television show. When an anonymous letter arrived in my mail, I was surprised and annoyed.

I’m annoyed that I would prefer to find out the name “kangaroo” on my own, since research was a pretty fun thing! (Three days later, I conducted a detailed study of the general data of the Ofcom website - communication with Poland, “kangaroo”, company name, it was all so easy to find out). I was surprised not only because of the allegations, but rather because of the name “kangaroo”. “No ... Wait ... It can't be,” I told myself. And that’s why I couldn’t believe my eyes:

In April 2013, two years after the first book’s release field, I decided to study high-frequency trading better and asked permission to attend the Trade Tech Europe 2013 conference in London. The first day I completely devoted to high-frequency trading, with some interesting points I shared in this post(French) At the end of the day, I made a small “speech” on the topic of anthropology and high-frequency trading, because the organizers of Trade Tech allowed me to attend the conference only if I made a speech (I could not afford to pay the required 3,000 euros).

The next day, when I was studying the stands, I was approached by a manager from the Netherlands regulatory authority AFMand said a few kind words about my clumsy speech (we discussed finances, Michel Foucault and the Panopticon group), and a physicist from France shared his opinion about Nietzsche and Toynbee. But the first person I talked to that day was a charming man with original glasses. We talked sweetly about epistemology, and he talked about his work. A charming man with a Polish name, whom I no longer met, worked in a company providing technical support to HFT companies. I don’t remember the badge, but this man was a “kangaroo”.

To be continued...

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