In past notes, we have talked about how the race to zero latency in the trading world has created new networks that have drilled holes in the Pennsylvania mountains (Spread Networks) and have installed new high speed cables at the bottom of the Atlantic Ocean (Hibernia Atlantic) to save a few milliseconds. These networks, of course, charge high rents for access to their lines. Today we’d like to introduce you to another concept floating around the HFT world: Seasteading.
Seasteading is the concept of creating permanent dwellings at sea, called seasteads, outside the territory claimed by the government of any standing nation. Why would HFT’s be interested in seasteads? We found a very interesting video (skip to 4 minute mark) from a June 2012 conference where a Harvard scientist, Alexander Wissner-Gross, explains exactly why HFT is interested in seasteading. The title of his presentation was “Liquidity on the Seas” (pretty catchy). Here are a few key points from his presentation:
-The latencies of high speed networks like Spread Networks and Hibernia Atlantic are actually starting to approach the physical limits allowed for photons travelling through optical fibers. Essentially, the financial sector has been pushing the physical limits of information transmission.
-Best way to coordinate your trading between two different locations is to position yourself in between the locations. While you won’t be the first person to see the latest prices, you will be the first person to see the correlations between the venues.
-The best spots to locate based on where the world financial data centers are located would be in the middle of oceans. The blue dots on the above map are the optimal locations.
-Wissner-Gross says that this is already being done in some spots in the Pacific ocean by taking over old oil platforms and installing servers on them which is allowing high frequency trading to optimally coordinate a variety of markets.
-“Network latencies are being minimized in very aggressive ways and costly ways (hundreds of millions of dollars) in order to make trading algorithms faster.”
-Wissner-Gross even talks about a new technology that could send signals through solid rock.
Wissner-Gross goes into much more detail in a paper titled “Relativistic Statistical Arbitrage” where he “shows that there exist optimal locations from which to coordinate the statistical arbitrage of pairs of spacelike separated securities, and calculates a representative map of such locations on Earth.”
Good luck human!