Information Transmission between Financial Markets in Chicago and New York

The Economics of High-Frequency Trading: Taking Stock

“…Examples are press releases by companies, governments, and central banks; analyst reports; and trade information, including order-book updates not only for the security of interest but also for correlated securities. Another, more narrow, reason for HFTs' speed advantage is quick access to such information (by using, for example, microwave towers; Laughlin, Aguirre & Grundfest 2014).…”

The Internet at the Speed of Light

“…In fact, the high-frequency trading industry has already demonstrated its plausibility. In the quest to cut latency between the New York and Chicago stock exchanges, several iterations of this connection have been built, aimed at successively improving latency by just a few milliseconds at the expense of hundreds of millions of dollars [28]. In the mid-1980s, the round-trip latency was 14.5ms.…”

Computerized and High‐Frequency Trading

“…In a world with rapid, computerized trading, speed is essential. Scholtus, van Dijk and Frijns () show that high‐speed responses on the order of milliseconds are crucially important for HFT strategies based on U.S. macroeconomic news releases, and Laughlin, Aguirre and Grundfest () describe transactions nanoseconds after an announcement by the Federal Reserve. Some HFT firms electronically parse news releases and apply textual analysis to trade on the inferred news.…”

“…Lattman () further notes that Thomson Reuters had, in addition, “accidentally released a manufacturing survey from the Institute of Supply Management to a small group of traders milliseconds before others received it. Those traders used computer models to process and trade on the data.” Laughlin, Aguirre and Grundfest () also describe that “$4.939M of SPY shares traded with a single nanosecond time stamp of 2:00:00.000390009,” just after the announcement by the Federal Reserve on September 18, 2013 that it would not start to taper its purchases of bonds.…”