MAY 18, 2010 By Stephen Hardy -- It seems everyone with a network -- or at least everyone with a network in the New York/New Jersey area -- has hopped on the low latency bandwagon. The competition to serve the needs of financial services companies whose algorithmic trading requires shaving microseconds and even nanoseconds off of connection latency therefore has become intense. It’s not surprising then to hear one veteran of this fray to say that when making a low-latency services sale, timing is everything -- and not just trade timing.
Optimum Lightpath, a division of Cablevision Systems Corp., sells Ethernet-based data, voice, Internet, and video transport, as well as managed services, to businesses in New York, New Jersey, and Connecticut. The company therefore has a keen interest in meeting the financial community’s requirements for low-latency connections to trading centers -- or, as Senior Vice President of Product Strategy and Management John Macario says he recently heard them called, “preferred liquidity destinations.” (See “Optimum Lightpath launches low-latency optical transport service.”)
“There are 20 or 30 prime locations in the New York metropolitan area that everyone in the financial services community wants to get to and from,” he says. Optimum Lightpath has developed connection products to 10 of them, with another 10 in development.
“What we’ve done is to take, at present, 10 of the most popular routes in the New York metropolitan area and put strict SLAs [service level agreements] around them on a couple of things,” Macario explains. “One is the latency itself. So it’s simply in our case a measure of the physical distance of our route, and taking care to choose equipment that introduces as little latency as possible. Consequently, we can publish a latency figure for each one of those routes.”
Needless to say, those latency figures must be extremely low. “If you don’t have a competitive latency number, the chances that you win that business are pretty slim. If you’re milliseconds different, you might as well forget about it,” Macario asserts.
The second big item within the SLA is deployment time. When a financial services company wants to launch a new trading model, it wants to test it out as quickly as possible. “So on each of these routes we have built appropriate capacity to ensure a turn-up interval consistent with what we see as best in class within the footprint,” Macario says.
Perhaps surprisingly, the two elements are nearly co-equal when it comes to making a sale. “If you’ve got the best latency, you’re going to win more business than others,” Macario offers. However, “if I’ve got the best latency and it’s going to take me 60 days [to connect the customer], and my competitor has got just slightly worse latency and they can get it up in 10 days, we’re back in a competitive situation,” he says.
Financial customers typically will lease a primary link from one carrier and a secondary link from a competitor to help ensure they have their bases covered, Marcario adds. “Typically, we see more demand for 10-gig than we do for 1-gig," he says. "The bigger the pipe, the less likelihood of swamping it with volume and causing collisions. Because there’s so much money at stake here for this sector, they’re willing to spend more for a 10-gig just to be on the safe side.”
Not surprisingly, traders make tough customers. “They’re incredibly sophisticated buyers, and you need to bring your A game in all respects," Macario admits. "And that means being able to prove your claims, not simply make them.”
And service providers need to prove these claims more frequently than with other customers as well. While three-year contracts have been the industry norm, Macario says that financial customers now want one-year commitments.
The implication is clear: Financial customers have as little patience with underperforming networks as underperforming stocks.