Trans-Atlantic cables for even higher frequency trading
A sign at the New York Stock Exchange.
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Kai Ryssdal: Remember back in May when the Dow fell a thousand points in something like five minutes and then bounced right back? Today, two government agencies said thay momentary panic -- the "flash crash" as it's known -- was caused by a single trading house that sold a bunch of stuff really fast. That triggered a whole lot of automatic selling in what are called high-frequency trades, when computers use split-second changes in prices to make money. Interestingly enough, just as the report started to leak this morning, we learned there's going to be a new cable laid across the Atlantic Ocean to be used by -- wait for it -- high frequency traders.
Marketplace's Jeremy Hobson reports from New York.
: It was 152 years ago when the first cable was laid underneath the Atlantic. There were fireworks in New York City, which came to a halt because of all the excitement. Sixty million people in the U.S. and England could finally telegraph each other.
Well now, the company Hibernia is laying another cable so trading computers can talk to each other just a bit faster.
Joe Hilt is vice president of sales for the company.
Joe Hilt: Currently today, the fastest cable across the Atlantic is about 65 milliseconds. This cable system will be sub-60 milliseconds. We believe that this is the fastest path between New Jersey and London.
It'll go to New Jersey, because that's one of the big high-speed trading data centers. You need room for all those computers. Hilt says the company is laying the cable because traders need every fraction of a second they can get.
Hilt: You know, it's really who gets there first, so if people are trading off algorithms, and they have a server and they're all in the same location, and somebody is traveling faster, you know, they may get in $55 dollars a share rather than $55.50 a share.
That kind of difference matters when you're buying in bulk.
Vasant Dhar is a professor of information systems at NYU's business school. He's not worried about the trend toward high speed. He says all that computer trading fills up markets with money; it adds liquidity. But:
Vasant Dhar: The danger, which is when these guys just step away, as probably happened during the flash crash, you know, suddenly all that liquidity that was there dries up.
And unfortunately, even laying the cable underneath the ocean won't solve that kind of liquidity crisis.
In New York, I'm Jeremy Hobson for Marketplace.