Does latency still matter in finance?

11 December 2015 | Michael Ourabah

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Michael Ourabah

Blog Author | BSO Network Solutions; CEO


In the global world of business, companies expect their transactions to move in the blink of an eye. In the finance and high frequency trading (HFT) sectors, this means saving every microsecond possible in the transmission and processing of a trade.

In the global world of business, companies expect their transactions to move in the blink of an eye. In the finance and high frequency trading (HFT) sectors, this means saving every microsecond possible in the transmission and processing of a trade. 

In other industries bandwidth availability and network reliability often come first, but for HFT ultra-low latency is still one of the most critical considerations. 

Impelled by finance companies looking to generate large profits, the ambition to achieve near-zero latency continues to drive parts of the telecoms industry. 

Latency certainly hasn’t become a minor consideration yet, although no matter how quickly trades are processed on the computer hardware located in an exchange’s data centre, a trader is still totally reliant on the speed of the network that connects them with the exchange. The further apart they are, the more microseconds are added.  

Financial exchanges across the world are also part of the latency equation. They aim to attract HFT firms by offering co-location space within, or very close to, their own facilities. This leads some companies to host their infrastructure in carrier-neutral data centres strategically located in close proximity to exchanges and financial hubs. This proximity can drastically reduce latency.

 

Cross-border digital capital

It is unwise to suggest data transmission times no longer matter. The ebb and flow of international finance means there will always be a newly emerged marketplace that needs capitalising on. 

One recent example is Turkey and Borsa İstanbul, a strategic exchange linking Western and Eastern trading markets. 

Borsa İstanbul’s accessibility - which brings together all of Turkey’s capital markets in a single location – and its commitment to HFT makes it highly attractive on a global scale. Nowadays connectivity from Frankfurt is possible in just 35 milliseconds (ms), London in 43ms and Chicago in 123ms. These figures illustrate the small, but significant differences in transaction times in relation to distance.

Our customers offer further evidence of this concept. One example - a global trading platform that provides 85% of the world’s premier financial institutions with their multi-asset trading and investment infrastructure, market data and analysis - is constantly evaluating its global networks. 

In the past the company had been frustrated by network complications and a general lack of reliability. At the heart of this, poor latencies were having a detrimental effect on existing customer relationships. For this company, like many organisations working in the financial market, network infrastructure underpins its entire operation. 

From a broader perspective, connectivity is a critical component enabling trillions of pounds worth of global transactions; that’s why latency still matters.