Rival trading firms want to save money on data transmission and infrastructure, so they’re in talks to jointly build a high-speed communications link between Chicago and Japan.
The “Go West” project involves building a line of microwave towers from the Chicago market to the West Coast, possibly ending in the Seattle area, and connecting to an undersea cable to Asia, sources told Bloomberg.
Citadel LLC, Virtu Financial Inc. and Jump Trading LLC are reportedly part of the talks; the three companies declined comment.
Fiber-optic networks used to be the primary method large traders used to send data between continents; now microwave networks help them conduct their business faster.
Assuming a straight line is used between the 1,700+ miles from Chicago to Seattle, trades that currently take about 14 milliseconds over fiber could take some 9.5 milliseconds with microwave networks.
Large traders have tried to shave time off for years. Yale University Professor Greg Laughlin studied the topic and estimates between six to 10 separate microwave networks that support speed trading operate between Chicago and stock trading data centers in New Jersey.
By cooperating on building a network, the rivals could cut their infrastructure costs and focus their energies on trading against each other, according to Laughlin. “A consortium makes a lot of sense because you distribute the risk and you distribute the benefits and you also are able to kind of keep the status quo from being completely disrupted. High-frequency trading strategies are very, very, delicate and difficult to come up with and temperamental and they don’t last.”
The project could also be part of a larger attempt to control trading costs, a source tells Bloomberg. Exchanges have escalated the prices they charge traders in recent years to access their markets and receive crucial price data feeds. Automated trading companies could potentially increase efforts to cut costs and seek more broker support in doing so.
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