raging bulls

Naslund, Steve SNaslund at medline.com
Wed Aug 8 09:14:13 CDT 2012


It is a tough technical problem to be sure but not insurmountable.
Think about a system in which the real time market data is also
encrypted in such a way that it can only be decrypted at a particular
point in time.  Essentially it would be like each trading system
receiving an envelope that must be opened simultaneously.  Picture a
satellite network that is time synchronized to transmit a key stream
used to decrypt the data that is received over a terrestrial network.  I
am not talking about easy to implement here just what is possible.  It
is probably easier than faster than light travel although I supposed
real estate on Mt Everest could get very valuable (closer to the
satellites) :)

Steve

-----Original Message-----
From: Brett Frankenberger [mailto:rbf+nanog at panix.com] 
Sent: Wednesday, August 08, 2012 9:08 AM
To: Naslund, Steve
Cc: nanog at nanog.org
Subject: Re: raging bulls

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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