Opening Cross: Making Waves Across—and Beneath—the Oceans

Increasingly interconnected finanical markets present a range of challenges for trading firms looking to leverage their experience and technologies across regions and asset classes.

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Cable: copper or fiber-optic strands wound together and coated to conduct electrical messages—a very simple accessory that has become a key component of modern datacenter-led trading strategies. From the spaghetti between switches in your server or telecom room to people arguing over the length of cable that connects them to markets hosted in a co-location datacenter compared to the length of cable given to their rivals, cable is literally everywhere. Cable is also a term for US dollar-pounds sterling trades in the currency markets, named because it was the first financial market that required laying an undersea cable across the Atlantic to carry price data back and forth.

In fact, as market centers worldwide become more interconnected, these undersea cables have become key routes for electronic communications of all kinds. And on the relatively rare occasions when these cables are damaged or severed by earthquakes or errant trawlers, financial markets can find themselves quite literally cut off from the rest of the world.

And it’s not just data that flies across oceans. This week, we describe several Transatlantic crossings: for example, New York-based outsourced sales consultancy USAM Group has hired Ashley Daffin in London to promote its business there among local clients, and to provide a local resource for US data or technology vendors wanting to bring their wares to new markets in London and Europe. Headed in the other direction, Madrid-based Web Financial Group has reached critical mass in Europe and is now looking to broaden its reach to US markets, with significant hires planned over the next 18 months, totaling a substantial financial commitment to the region. Meanwhile, UK-based hosting and telecoms vendor BT is bolstering its existing US network resources with a dedicated high-bandwidth network connecting six datacenters in the Chicago and New York metro areas.

Something else that traders try to move between locations is trading strategies themselves. To be sure, not every strategy will work as well—or at all—in a market that it wasn’t originally intended for, but as the advantage time for strategies becomes ever-shorter, firms are keen to eke every last penny out of their investment, so are looking to deploy algorithms originally developed, say, for trading US equities into other asset classes, such as bonds, futures and options, or to other equities markets around the world where the alpha that they’ve already exhausted in the US may still exist. The challenge of this is knowing which markets will work and which won’t—something that in the past, a firm wouldn’t know until it had spent a small fortune setting up a local presence in those markets, subscribing to data, and paying for access to exchanges before it could determine whether a strategy would really work there. Thus, firms want to apply back-testing processes not just when first building a strategy, but when adapting it to simulate market conditions on specific marketplaces, to determine how successful it could be elsewhere—a capability that Lime Brokerage is now rolling out to users of its Strategy Studio product by integrating feed handlers from Vela Trading Technologies (formerly SR Labs) that will allow them to test against feeds from international markets and multi-asset data sources, making it easier to test strategies against markets on different continents or new asset classes without significant upfront investment.

And speaking of all this movement back and forth between continents, I and my colleagues will be in London this week for our European Financial Information Summit, hosted by Inside Market Data and Inside Reference Data. Our North American Financial Information Summit held in New York in May contained some of the best panel discussions I’ve seen in many years, and we hope this week’s summit will build on that success and continue to deliver valuable content and networking opportunities for attendees. And from my perspective, it’s always good to see where the issues are similar or differ for the two financial centers on each end of that original cable.

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