Information Transmission Between Financial Markets in Chicago and New York


Publish Date:
April 7, 2014
Publication Title:
Financial Review
Journal Article 49 Volume 283 Pages
  • Gregory Laughlin, Anthony Aguirre, and Joseph Grundfest, Information Transmission Between Financial Markets in Chicago and New York, 49 Financial Review 283 (2014). Also Stanford Law and Economics Olin Working Paper, No. 442 (2013).
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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 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.