raging bulls

Brett Frankenberger rbf+nanog at panix.com
Wed Aug 8 09:08:27 CDT 2012


On Wed, Aug 08, 2012 at 08:52:51AM -0500, Naslund, Steve wrote:
> It seems to me that all the markets have been doing this the wrong way.
> Would it now be more fair to use some kind of signed timestamp and
> process all transactions in the order that they originated?  Perhaps
> each trade could have a signed GPS tag with the absolute time on it. It
> would keep everyone's trades in order no matter how latent their
> connection to the market was.  All you would have to do is introduce a
> couple of seconds delay to account for the longest circuit and then take
> them in order.  They could certainly use less expensive connections and
> ensure that international traders get a fair shake.

This isn't about giving international traders a fair shake.  This sort
of latency is only relevant to high speed program trading, and the
international traders can locate their servers in NYC just as easily as
the US-based traders.

What it's about is allowing traders to arbitrage between markets.  When
product A is traded in, say, London, and product B is traded in New
York, and their prices are correlated, you can make money if your
program running in NY can learn the price of product B in London a few
milliseconds before the other guy's program.  And you can make money if
your program running in London can learn the price of product A in NY a
few milliseconds before the other guy's program.

Even if you execute the trades based on a GPS timestamp (I'm ignoring
all the logistics of preventing cheating here), it doesn't matter,
because the computer that got the information first will make the
trading decision first.

     -- Brett



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