Information Transmission between Financial Markets in Chicago and New York
Stanford Law and Economics Olin Working Paper No. 442
Rock Center for Corporate Governance at Stanford University Working Paper No. 137
19 Pages Posted: 4 Mar 2013 Last revised: 18 Apr 2013
Date Written: November 21, 2012
High frequency trading has led to widespread eftorts to reduce information propagation delays between physically distant exchanges. Using relativistically correct millisecond-resolution tick data, we document a 3-millisecond decrease in one-way communication time between the Chicago and New York areas that occurred from April 27th, 2010 to August 17th, 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 and bandwidths. We estimate the total infrastructure and 5-year operations costs associated with these latency improvements to exceed $500 million.
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