Information Transmission between Financial Markets in Chicago and New York

Michael Goldstein (), Gregory Laughlin, Anthony Aguirre and Joseph Grundfest

The Financial Review, 2014, vol. 49, issue 2, 283-312

Abstract: High-frequency trading has led to widespread efforts to reduce information propagation delays between physically distant exchanges. Using relativistically correct millisecond-resolution tick data, we document a three millisecond decrease in one-way communication time between the Chicago and New York areas that occurred from April 27, 2010 to August 17, 2012. We attribute the first segment of this decline to the introduction of a latency-optimized fiber optic connection in late 2010. A second phase of latency decrease can be attributed to line-of-sight microwave networks, operating primarily in the 6–11 GHz region of the spectrum, licensed during 2011 and 2012. Using publicly available information, we estimate these networks' latencies, costs, and bandwidths.

Date: 2014
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