Supercharged Chicago-to-Tokyo Network Planned by Traders

In a move that would accelerate trading between two of the major centers of finance, some of the world’s top trading firms have got together and agreed to build a faster data transmission network between Chicago and Tokyo, reported the media quoting a person familiar with the matter.

According to the person, who asked not to be identified because the agreement is private, IMC, Jump Trading, KCG Holdings, Optiver, Tower Research, DRW’s Vigilant division, Virtu Financial and XR Trading are among the roster of firms in the joint venture that has been reportedly dubbed Go West. A representative for the group however declined to comment on the plans.

Existing wireless towers, fiber-optic lines and undersea cables would the ingredients  that would make up the Go West network, reported the media quoting the source with knowledge of the matter.

The source said that the group’s aims include creating a level playing field for all traders and sharing the expense of building the network and added that the group has decided that firms outside the original consortium will be able to access the network starting in 2017.

For years, big traders have waged an arms race for years to shave milliseconds off trading times and in that context, this joining of forces for the building of the networks signals a truce in the arms race.

According to an estimate from Greg Laughlin, a Yale University astronomy professor who has studied the topic, there would possibly be six to ten separate microwave networks that would support speed trading operations between the Chicago and the New Jersey data centers where U.S. stock trading takes place. Traders would be v and they would also be able to cut their costs for infrastructure by teaming up.

Earlier infrastructure in the American west, such as the railroads, highways and other initiatives were linked to the present project by Laughlin.

“It’s not that different from the Oregon Trail or the Pony Express. Throughout U.S. history there’s been this idea of the frontier and connecting back east with the west,” he added. “Now for the 21st century we have a lightning-fast wireless network that connects one side of the globe to the other,” Laughlin said.

Arbitrage, or betting that gaps in the prices of two similar things will disappear, is something that many automated trading firms often engage in. And between the U.S. and Japan, such opportunities exist. For example, the Tokyo-based Japan Exchange Group Inc.’s market and the Chicago-based CME Group Inc.’s exchange are exchanges where futures contracts on Japan’s Nikkei 225 stock index trade.

(Adapted from Bloomberg)


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