Information Transmission between Financial Markets in Chicago and New York

19 Pages Posted: 4 Mar 2013 Last revised: 25 Mar 2013

See all articles by Gregory Laughlin

Gregory Laughlin

Yale University

Anthony Aguirre

University of California, Santa Cruz

Joseph Grundfest

Stanford Law School

Date Written: November 21, 2012

Abstract

High frequency trading has led to widespread eft orts 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 fi ber 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.

Suggested Citation

Laughlin, Gregory and Aguirre, Anthony and Grundfest, Joseph A., Information Transmission between Financial Markets in Chicago and New York (November 21, 2012). Stanford Law and Economics Olin Working Paper No. 442, Rock Center for Corporate Governance at Stanford University Working Paper No. 137, Available at SSRN: https://ssrn.com/abstract=2227519 or http://dx.doi.org/10.2139/ssrn.2227519

Gregory Laughlin (Contact Author)

Yale University ( email )

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HOME PAGE: http://astronomy.yale.edu/people/gregory-laughlin

Anthony Aguirre

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Joseph A. Grundfest

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0458 (Phone)
650-723-8229 (Fax)

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