[Infowarrior] - Trans-Atlantic Cable Targets High-Frequency Traders

[Richard Forno]

Underwater Options? Trans-Atlantic Cable Targets High-Frequency Traders
By DOUG CAMERON And JACOB BUNGE

http://online.wsj.com/article/SB10001424052748704789404575524072473936124.html

Hibernia Atlantic announced plans Thursday to build a new trans-Atlantic communications cable aimed at high-frequency stock traders, shaving 500 kilometers (310 miles) from the shortest existing route and cutting execution times by about 8%.

The cable group's plan is the latest effort to link financial centers with new infrastructure, providing ever-faster trading times, and would be the first new line across the Atlantic in more than a decade.

The trans-Atlantic market is the world's second-busiest for financial trades after London-Frankfurt. A new, shorter cable route developed by Spread Networks recently was opened on the third-ranked New York-Chicago corridor.

Closing the Gap

"There has been a gap in the Atlantic market," said Mike Saunders, Hibernia Atlantic's vice president for business development.

Hibernia Atlantic has yet to sign any definitive customer contracts for the project. It is targeting high-frequency traders and related financial firms with round-trip speeds of less than 60 milliseconds, compared with 65 milliseconds using the existing AC-1 trans-Atlantic network.

Mr. Saunders said the company aims to start construction next spring and complete the 6,000-kilometer (3,720-mile) cable running from Somerset in southern England to Halifax on Canada's eastern seaboard by mid-2012.

Hibernia Atlantic, a unit of Columbia Ventures Corp., a Canadian telecom investment firm, declined to detail the cost of the project, which Mr. Saunders said was in the range of "hundreds of millions of dollars."

Technology-driven trading firms are estimated to make up about two-thirds of daily trading activity in U.S. stock markets and are ramping up growth in overseas venues.

Intense competition to harvest profits from often tiny movements in the price of securities and derivatives has driven speed-sensitive banks and trading houses into new exchange-backed data centers promising the fastest possible trade executions, and toward low-latency connections like those developed by Hibernia and Spread Networks.

Such links help inform trading programs that need to consider market data coming out of two separate locations, according to Kevin McPartland, senior analyst with market research firm Tabb Group.

Shaving Milliseconds

"Say there's a tick up in the price of a future, and all the stocks in a certain basket will tick up a fraction of a second later," Mr. McPartland said. "If you can see two milliseconds faster where the futures moved in Chicago and subsequently make the stock trade in New York, you can more quickly capture the spread."

The 825-mile line between Chicago and New York by Spread Networks was plotted to be more direct than any existing connection, according to David Barksdale, the company's chief executive.

"The market need was highest among financial firms," said Mr. Barksdale in an interview. "They want ultralow-latency and control over the electronics" attached to the fiber, he said.

Creating Spread's cable link took two years and about 1,000 construction workers at any given time during the project, which has been estimated to cost $300 million, though the company declined to discuss the expense.

Spread's link went live in August and has reduced latency between the two cities to 13.3 milliseconds, undercutting other routes. A millisecond is one-thousandth of a second.

Such high-speed lines are seen carrying a high price tag. While neither Spread nor Hibernia discussed fees, Raymond James analyst Patrick O'Shaughnessy saw a developing situation of "have and have-nots" dividing the high-frequency trading world, with firms that can afford the service beating out less well-capitalized rivals.

"On the margin we believe this has led to lower trading volumes, at least in the near term, as smaller players exit the business or revamp their business models and/or technology to evolve with the changing environment," Mr. O'Shaughnessy wrote in a research note.

Write to Doug Cameron at doug.cameron at dowjones.com and Jacob Bunge at jacob.bunge at dowjones.com