Why is it only now, that some within the industry have decided that perhaps the speed of communicating amongst entities should be governed? Or in the instances of HFT, perhaps restricted altogether? This seems a bit counter intuitive to me. If technology and the innovation exist to increasingly lower the time with which it takes to trade with the markets and, in turn, counterparties, why would we possibly want to stand in the way of progress?

Low-latency in and of itself is not a bad thing. In fact, I think it is a tremendously good thing. If low-latency is good, then ultra low-latency must be better. But the problem isn’t with the terms low latency and ultra low latency, or with the speeds with which each denotes. It is the simple fact that latency does not mean the same thing to everyone. Nor is it measured or presented in the same way.

So if latency means something different to each of us, and the exchanges, vendors and market participants do not have an agreed upon methodology for which to measure it, then surely latency must be an impossible task to regulate and legislate.

What is the industry to do? Do we ignore this advance in technology and hope it goes away? History has shown this is perhaps a bad idea. Do we regulate in changes that limit the advantages of technology? I think this could create loopholes that could create an even greater disparity between the haves and have nots. No. We do what vendors and exchanges alike have long chosen to do: adapt our systems and processes to accommodate ever increasing advances in technology. 

The reality is that latency isn’t that important. The speed with which a trade can reach an exchange is governed by the laws of physics. Information can only travel so fast down a fibre optic line. Vendor systems and market data also comprise additional latency and then there are the exchange systems. It all culminates in an ultimate terminal velocity predicated on the physical distance of the round trip. The most important aspect in measuring latency is not end-to-end nor is it round trip. It’s not the exchange matching engine and it’s not the amount of gigabytes in your dark fibre line, although all play a key part in the experience.

The key element is in the outliers. Those 1-2% of orders that don’t fall nicely into the average latency pattern. It’s the 1% of orders that get processed at 10 milliseconds instead of the 99% of orders that are processed at 200 microseconds. For it is in that small minority of trades – those trades that vendors and exchanges don’t like to talk about – that can mean the difference between a profitable trading day and a losing one. It is the one area within the latency discussion that those people who are truly clued in will care to discuss and analyze and scrutinize. 

As I said, low latency is good. Ultra low-latency is better. But until the industry is measuring latency by a common methodology, it is all a bit of marketing and spin. In the interim, I’ll focus on reducing my outliers and tightening my dispersal.

To the rest of you fighting over your final 10 microseconds, what’s your hurry?