When Spread Networks unveiled their newest New York-to-Chicago route in 2010, the fanfare was loud and the impact was immediate. Construction crews had blasted through rock and rough terrain to lay down an 825 mile (1,328 km) underground cable in the straightest possible way, although some concessions had to be made for Lake Michigan. The cost was enormous, but no one had doubts as to whether it was worth it. Spread Networks had lopped 100 miles off the previously fastest route and could offer a round-trip journey in a record 13.1 milliseconds, three milliseconds speedier than any previous path.
An awful lot of trades can be made in three milliseconds and some once-profitable firms could immediately see that they were being beaten to the punch. To make its heavy investment worthwhile, Spread Networks required clients to enter long-term contracts. There was no shortage of takers given the trading advantage they could have.
The ink on those contracts had barely dried before people began looking for alternative ways to connect the futures markets of Chicago with Wall Street. The solution that presented itself was, to use a well-worn expression, an oldie but a goodie: microwave transmission.
This technology, which has been around for decades, was found to shave precious milliseconds off trip times, once certain technological obstacles were overcome.
Microwave transmission has its drawbacks (more on that later), and it's not cheap. But in a world where a millisecond seems to last forever, anything offering a speed advantage was bound to draw fans. So much so that the trend has already spread from the United States to Europe and there is plenty of interest in using microwave transmission in Asia and South America.
Stephane Tyc, a co-founder of McKay Brothers, which has just launched its own Chicago-New York microwave pathway, sees this technology altering the trading landscape. "To compete with the fastest you will need to get a microwave line, or buy the fastest market data from a microwave vendor," Tyc said. "The availability of fast microwave data will bring back a level playing field."