High Frequency Trading Next Door - Part II

Original author: sniperinmahwah
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To give a clear idea of ​​what you can find on the map and how to determine the location of the towers, we will again move to Houtem.

[ first part ]

From Frankfurt to London ... and Chicago


New Yorks Stock Exchange [ Eng. New York Stock Exchange, hereinafter referred to as the NYSE ] The United States is currently located in Mahwah, New Jersey. For the local indigenous people, the Lenape people, the word “mahwah” means “a place where paths cross” - an ideal description of today's exchange.

At NYSE, neighboring trading companies meet in the data center, and microwave paths converge on the roof. The two main data centers in Europe are located in England near London: the first in the east in the city of Basildon with NYSE equipment owned by the Euronext exchange [ formerly LIFFE - London International Financial Futures and Options Exchange] and the Goldman Sacs Dark Pool Sigma X; and the second - in the west in the city of Slough: this is the LD4 data center, which includes exchanges managed by BATS [ eng. Better Alternative Trading System ]. In Frankfurt, Germany, there is the Equinix FR2 data center, whose services are used by the Deutsche Börse and Eurex exchanges. In a very limited world of microwave radiation, there are two types of competitors. The first type is proprietary trading HFTs : Jump Trading (known as World Class Wireless) located in Chicago , Optiver and Flow Traders (known as Global Connect) in the Netherlands , as well as DRW

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(known as Vigilant Global). Some of these firms sell part of the frequency range to other customers. The second type is the demanded providers: McKay Brothers , Custom Connect , and also recently NeXXcom and Latent Networks in Europe.

Their customers are banks, hedge funds, and even other HFT companies. Some companies, like McKay Brothers, are only interested in the Frankfurt-London route ( ITinvest is working on providing access to the London Stock Exchange ), while others, Optiver, Flow Traders, Jump and Vigilant, are also connected to the Atlantic Crossing 1 cable-laying station.at Whitesand Band, Cornwall, England, which allows Atlantic data to be transmitted directly to Chicago using U.S. radio links. Let's start with Jump Trading.

Incredible auction bidding


Contrary to popular belief, NATO did not use or own the Houtem tower advertised by Bloomberg; rather, the US Army built it for itself in the 1970s. The tower (as well as two more located in Belgium, one of which Jump now uses) was sold in Belgium in 2006.

“The Ministry of Defense today announced a decision to deactivate and return three sites of Belgian radio relay stations. (...) The closure of these sites will result in annual savings estimated at more than 84,000 US dollars, according to a comparison of current annual operations and maintenance costs with the cost of replacing commercial communications, ”the US Department of Defense wrote.

In 2012, the Minister of Finance of Belgium used the same reasons for saving to sell the tower at auction.

Bidding took place on December 18, 2012 in Wörn. Despite the fact that the host of the auction is now retired, and my request for his phone number was rejected, I managed to talk with the person who visited the auction. There were only eight participants: a presenter, his assistant, a government official, and five potential buyers - two or three Americans, including a Jump representative, one large Belgian law firm, possibly acting on behalf of one of the competitors or being an ordinary listener.

Earlier, each of the potential buyers directly visited the tower in Houtem, so everyone came to the auction, realizing that the tower is in poor condition and its necessary repair, according to my informant, would cost the winner $ 1 million. The starting price was 255,000 euros, and the Belgian government would be glad to sell it for 400,000 euros. At first, the price was increased by 5,000 euros, but after half an hour the price was 700,000 euros, respectively increasing each time by 10,000 euros.

The host did not know who the customers really were and why they showed such interest in some old tower; such an unexpectedly high price made him sweat a lot and ask him to take a break. Gathering his thoughts in the restroom, startled, he slowly exhaled: "What the hell ...". The auction resumed, offers rose to 1,000,000, 1,500,000, 2,000,000 euros. At this moment, the host asked to take another pause. As a result, after three and a half hours, the tower was sold for 5,000,000 euros.

One of the participants quickly left the auction, as he parked near the police station, and the counter data was growing. Another loser buyer approached the Jump representative with the question “Maybe we’ll agree?”, Referring to buying part of the frequency range or renting an antenna space on a tower in Houtem. It is a pity that at that moment I could not turn into a fly on the wall to confirm my suspicions about which of the competitors tried to negotiate with Jump at an auction that day in Flanders.

Crazy visit to the tower in Houtem


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During the July holidays, I missed the tower, because of this I decided to return to Houtham with my family in early September. I spoke with different people from the microwave industry, from Jump competitors to equipment suppliers, and they explained to me how to conduct a live survey. I learned to act carefully, parked the car far from the tower, took binoculars and a camera, checked the GPS on the phone and then walked - I have to go, since most of the towers are in potato fields.

Some trips to different towers allowed me to improve my strategy, so that I gained confidence by approaching the desired object. In Houtem, I parked near a farm and walked along Chemin des Limites, not far from the Franco-Belgian border. Not far from the production facility, I noticed a van and a worker in the base area of ​​the tower. “Bad news,” I told myself, thinking that the National Security agent should always go unnoticed. I secretly started to shoot the Houtem tower:

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When the worker left to burn something in the field, I came closer:

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There was n’t on the fencesign “No trespassing”, so I naturally decided to use the opportunity that suddenly appeared - the employee left the door open! My 63-year-old mother stood on a skater, watching the worker, while I went into each room, took photos of the equipment until I saw a big red button in front of me, acting like an emergency shutdown button. It was amazing to realize that I could disconnect the Jump radio link from a company simply by pressing a button. But I did not intend to harm either Jump or Perseus customers, in addition, there is fiber optic isolation on the radio relay lines, so any act of sabotage would be useless. I appeal to Jump lawyers: do not sue me. I know that I was in "private territory", therefore I am not going to upload my photos, although I saved this one:

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It was amazing to see the incredibly small base of a 243-meter tower. Such towers are the wonders of technology. This base diameter is only 25 centimeters, and the structure remains in an upright position only thanks to 48 stretch marks. Okay, I have to post one more photo, because the view is simply amazing:

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In general, more than cutting down electricity, I wanted to try to jump up and climb the tower, but the worker returned, so I silently left.

The tower was completely renovated and equipped with new extensions from top to bottom, however, my goal was to check satellite dishes. At the time of the publication of the Bloomberg article, there were two such antennas at the top of this tower:

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Three are visible in my photo, which means Jump installed one more in the period from early July to early September:

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After that, I asked the same question that perplexed the leading auction: Why? Why did Jump have to pay for the Houtham Tower? The first reason is height. High-frequency traders need high towers to provide speed, and the Houtem Tower is the fourth tallest in Belgium. Below, I added to the table of the highest constructions from Wikipedia a column of the names of the HFT tower-owning companies:

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Due to the fact that the US Army owned the tower in Houtem from 1974 to 2006, I found this document published by the US Department of Commerce in 1979 and entitled “Distribution of signal level and research in the field of regulation of a radio relay line at a frequency of 5 GHz passing through the English Channel”. The article contained two graphs:

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(By the way, Jump uses the frequency from 7.448400 to 7.48401 GHz for such a path of 87.8 km.)

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All competitors are forced to cross the English Channel on the way from France or Belgium to England. Mostly they head either to Swingate in the north of Dover, where there are two towers that house Optiver, McKay and Vigilant, or to Hoagam in the south of Dover, where they installed their Latent and Custom Connect antennas: The towers in Swingate are located on the famous white cliffs of Dover, at an altitude of about 141 meters above sea level. However, some competitors of high-frequency traders create a communication line from Swingate to Dunkirk, a city located above sea level. In Dunkirk, antennas were installed on the Tour du Reuze tower: For the sake of justice, let's go back and tweak the schedule of the US Department of Commerce:

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Without going too deep into physics, I will say that microwave communication lines do not move in a straight line. Depending on atmospheric conditions, they deviate to a greater or lesser extent, mainly downward. Thus, in order to reach the tower, the signal must overcome a distance longer than that which corresponds to the provisions of Euclidean geometry . The Jump tower gives only a limited advantage, because the extra path is proportional to the square root of its height, while the price of the tower is directly proportional to its height and even more. I did not find anyone to understand why Jump paid such a high price for it.

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Tower in wavre


Jump, among other things, enjoy other towers in Belgium. The Belgian radio regulatory authorities clearly lack openness, but I found one , two , three, and then fourth dossiers that let me connect some routes: On Flobek, another old U.S. Army tower, they were located along with Flow Traders and Optiver: In Hannut they only work with Optiver. Comparing these two documents, it turns out that Jump installed a third antenna in Hannut from February 2012 to February 2013, possibly after they purchased a tower in Houtem. In Liege, Jump on the tower alone, although Vigilant and McKay are within a radius of 1.07 kilometers:

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I visited another tower where Jump is located in Wavre near Brussels. The tower in Wavre is the third tallest structure in Belgium. As usual, I parked the car far from the tower and walked through the fields. Several technicians worked at the top of a 250-meter tower, but from my vantage point on the ground they looked tiny. Unlike the Houtem Tower, which needed stretch marks to maintain its upright position, the Wavre tower is an excellent “standing structure”:

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Wavre is also known to fans of an extreme sport called base jumping. Here you can see two crazy people jumping from the tower: I hope they did not damage the antennas while flying:

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The reason for my trip to the tower in Wavre was the sabotage that occurred last spring and became an important event in Belgium. On the morning of May 24, 2014, several people organized an arson and thereby caused significant damage to the tower - this video (in French) just shows the charred parts of the antennas. The tower is owned by the Belgian national television and radio operator RTBF, and also contains several antennas used by mobile operators. The arson attracted so much media attention because May 24 was an important election day for Belgium. RTBF quickly built a temporary tower to install antennas for mobile, television and radio operators on it, but Jump antennas remained on the main tower, since the 50-meter temporary tower was not high enough for them.

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During my visit to Wavre, it was possible to see some charred parts on the ground:

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Of course, all the burnt cables brought Jump lines into a non-working state for some time. It is curious if the police interrogated any of Jump's competitors or those who knew that the trading company was located in a tower in Wavre. If at the beginning of September all cables were replaced with new ones, then Jump lines should be in good condition. Three large Jump antennas are shown below, two are directed towards Hannut, the third is towards Flobek or Oststleren:

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Height and speed


I would like to know if Jump, Optiver, and especially Vigilant, used the routes between New Haven and Isle of Wight in fact: Jump competitor, who asked “Maybe we’ll agree?” At the auction, maybe didn’t ask to install antennas on the tower ; surely his proposal was to split the frequency range. Despite the fact that in a small world of financial radio-relay communication lines is as calm as on the potato fields where their towers are located, I found that Jump shares its communication lines with Perseus and another provider, whose name I can’t be called. The facts are as follows:

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  • The microwave communication line can be divided into parts, in each of which the transmission speed will be no more than 10 Mb / s.
  • In general, a microwave link will have a transmission speed of 100 Mb / s. Transmission of each packet of 64 bytes on these communication lines will take 6 microseconds - the time interval may vary with a different form of transmission.
  • Each participant sends fragments of trading data in 64 bytes for service.
  • With a bandwidth of 10 Mb / s, clients can send only 1 packet approximately every 60 microseconds.

Now imagine that each client in the service sends data almost at the same time: this is a very likely scenario, since the probability of a situation in which one client sends its data just a few nano- or microseconds before the other and so on is extremely high. In this thought experiment, Client 1, the first, needs 6 microseconds to go to the microwave line at a speed of 100 Mb / s. Client 2 sends his trading data after 2 microseconds, so he waits 4 microseconds before the transition and in 6 microseconds, in fact, goes to the communication line. Client 3 sends the commercial data 1 microsecond after Client 2, waiting for 3 microseconds of Client 1, then 6 microseconds - Client 2, and another 6 microseconds to go to the communication line. Client 4 is faster: it sends data 1 nanosecond after Client 3.

This example shows the superiority of the network owner in terms of speed when agreeing on a shared frequency range. Jump shares its range with Perseus. Since Perseus has its own customers, none of them will be as fast as Jump. However, this does not mean that Jump is the fastest operator in the world of high-frequency trading. Although they acquired a tall tower in a favorable place, nevertheless, they are not as fast as their rivals, for example ... well, let's talk about faster high-frequency traders in Part III.

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To be continued ...

PS If you notice a typo, mistake or inaccuracy of the translation - write in a personal message, and we will quickly fix it.

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