Sunday, January 2, 2011

Postcards from the bleeding edge

The results of some cross-firing neurons this morning:

First, from a short article in the ACM Queue regarding the performance of the NFS networking protocols across trans-oceanic links, Bound by the Speed of Light:

Unfortunately, the speed of light gets involved when you start creating networks over global distances. It's typical for a transpacific network link to have a 120-ms round-trip time.


For every mile between the client and the server, a message cannot get to the server and back to the client in less than 10 microseconds, because light travels one mile in 5.4 microseconds in a vacuum. In a fiber-optic network, or in a copper cable, the signal travels considerably slower. If your server is 1,000 miles from your client, then the best round-trip time you could possibly achieve is 10 milliseconds.

Second, from a long article in the New York Times Business section, The New Speed of Money, Reshaping Markets:

In August, Spread Networks of Ridgeland, Miss., completed an 825-mile fiber optic network connecting the South Loop of Chicago to Cartaret, N.J., cutting a swath across central Pennsylvania and reducing the round-trip trading time between Chicago and New York by three milliseconds, to 13.33 milliseconds.

Then there are the international projects. Fractions of a second are regularly being shaved off of the busy Frankfurt-to-London route. And in October, a company called Hibernia Atlantic announced plans for a new fiber-optic link beneath the Atlantic from Halifax, Nova Scotia, to Somerset, England that will be able to send shares from London to New York and back in 60 milliseconds.

If the best possible time for a 1000 mile round trip is indeed 10 milliseconds, then achieving 13.3 milliseconds is superb progress.

But even 60 milliseconds to make a round-trip between London and New York can feel like an eternity, as the New York Times article points out:

Almost each week, it seems, one exchange or another claims a new record: Nasdaq, for example, says its time for an average order “round trip” is 98 microseconds — a mind-numbing speed equal to 98 millionths of a second.

These are different uses of the term "round-trip", of course, but the basic conclusion holds.

Unfortunately, both articles concentrate mostly on the mechanical details of order processing speed, pointing out why financial engineering companies tend to operate within a few miles of the major financial centers: New York, Chicago, London, Frankfort, etc., while I was hoping that the New York Times article would focus on the more interesting question (in my opinion), which has to do with the fairness and open-ness of modern electronic exchanges, and concerns questions that I think are still open from last spring's "Flash Crash":

But some analysts fear that some aspects of the flash crash may portend dangers greater than mere mechanical failure. They say some wild swings in prices may suggest that a small group of high-frequency traders could manipulate the market. Since May, there have been regular mini-flash crashes in individual stocks for which, some say, there are still no satisfactory explanations. Some experts say these drops in individual stocks could herald a future cataclysm.

For example, the NYT mentions the on-going debate about when information becomes visible on these exchanges:

Most of the exchanges have already eliminated a controversial electronic trading technique known as flash orders, which allow traders’ computers to peek at other investors’ orders a tiny fraction of a second before they are sent to the wider marketplace. Direct Edge, however, still offers a version of this service.

Nothing definite to report here, I guess: computers get faster, the world gets smaller, we continue to try to understand how to build fair and equitable markets. Just more postcards from the bleeding edge.

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