Wednesday, May 29, 2013

John Kay always gives me something to think about

In his latest piece, the wise economist John Kay discusses the race to build the fastest communication lines between trading exchanges, in order to provide traders with an edge that is measured in the milliseconds:
 ...Spread Networks has spent an estimated $300m building a fibre optic link through the Appalachians. The shorter cable reduces the time taken to send data by about a millisecond.
I hadn't given much thought to this constant push to be that little bit faster than the competition but Kay saliently points out that being ahead of the pack in this manner is little different to trading on insider information, a key difference being that the latter is illegal:
"Making profits from better-informed knowledge of business or government (where obtaining that might seem an activity of public value) is a criminal offence: making profits from marginally faster dissemination of that knowledge (where achieving that appears to have no public value at all) is a legitimate market practice."

This has little bearing on the armchair investor or indeed on anyone other than high frequency trading community, but it is still interesting food for thought.

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