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Slowing Down A Stock Exchange With 38 Miles Of Cable

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High-frequency traders have a couple of techniques on stock exchanges: however put simply, they collect cost info faster than anybody else, often even faster than the markets themselves, and also make use of that to make a tiny revenue numerous, several, lot of times. There are all sorts of options: yet it turns out there's a less complex one that includes physics.

Many thanks to Ronan and also all the team at IEX – you can find out even more concerning them right here: or on Twitter at

I fact-checked Ronan's case regarding the SEC white paper because it seemed a bit too excellent to be real, however he's right: see Hu, E. (2018 ). Willful Accessibility Delays, Market Top Quality, and also Rate Discovery: Proof from IEX Ending Up Being an Exchange. SSRN Electronic Journal. [PDF]
Edited by Michelle Martin (@mrsmmartin).

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82 Thoughts to “Slowing Down A Stock Exchange With 38 Miles Of Cable”

  1. Tom Scott

    Apologies for the patchy video quality in places here: my camera really did not like the lighting inside IEX’s offices. And to be clear, this isn’t sponsored, I just found out about the cable loops and emailed IEX to ask if I could film with them!

    1. Tyler Durden

      Interesting video

    2. Rene Schickbauer

      @chris vighagen Old computers sometimes used mercury delay lines. And the PAL TV recievers used ultrasonic delay lines for color decoding.

    3. Abdega

      These techniques do not work on time travelers such as yourself however

    4. Ted Phillips

      It should be a requirement all stocks must be held for 24 hours before being sold. We workers are all paying the price for these skimming operations. We know how the Mafia deals with such problems.

    5. James Casteel

      @Penguinator you can invest as well

  2. Aspect Science

    “There’s a lot to be said for a solution that just uses physics” yep. Sometimes the simplest (relative) solution is the best. 🔬🙌

    Cracking video as always Tom! Good to see you again, Happy New Year! Hope you enjoyed the time off!

    1. Alfie

      Yooo!!! I found you through Austin McConnell, good to see you around!

    2. Lloyd

      Aspect Science unfortunately in 4 minutes it’s hard to explain the many years of research it took these guys to figure out how to do this. Michael Lewis’s book Flash Boys is about this. These guys are really “good guys” on wall street.

    3. Emil Chandran

      Maiahi four fifths aren’t tho.

    4. Max Loh

      The SIMPLEST solution is sleep(350). Not buy a shitload of cable. Buying a shitload of cable is the certainly most CLICKBAITY marketing-friendly solution though.

    5. DynamicWorlds

      @Max Loh even buying cable to do the project, why fiber-optics which works at the speed of light if you’re trying to produce a delay? To make sure that number is as high as possible for marketing.

      Better solution: transaction tax on all sale of stocks and other investments. Finances government programs, effectively ends high-frequency trading, reduces market volatility (investments actually being made with forsight of holding onto them for at leas a little while? What a concept /s), dampens concentration of wealth, etc

      It’s also fair. We pay sales tax on all sorts of things (including, in my area basically all soaps, deodorants, detergents, household cleaners, school supplies, most other household supplies, etc)

  3. Bartholomew Dan

    “Slowing down a stock exchange with 38 miles of cable”
    What a title.

    1. nikolas de Vries

      I usually just use a couple planes

    2. Orixa

      Ain’t no planes comin cuz ain’t no space cuz ain’t not globe earth

    3. Paul Aldrich

      @Orixa your reasoned arguments have utterly convinced me

    4. Joe Average

      +Orixa
      I see you also bought Erik’s bag of mystery pills

  4. arthur g

    Of all the websites they choose pinterest

    1. Lil Grizzz

      Jayfive276 yes many dumbasss

    2. Shareem Ibitsfala

      IPO

    3. Shareem Ibitsfala

      Loren Z IPO

    4. Shareem Ibitsfala

      Jayfive276 IPO

  5. Peter Lustig

    New York stock exchange on pinterest dafaq?

    1. SuperSMT

      Because Pinterest is about to do its IPO

  6. Ilya Holt

    I don’t get stock exchange and I don’t know if I ever will. Economics is confusing…

    1. Ike Okereke

      @Socialism or Barbarygmos
      Stock exchanges existed in the Soviet Union.

    2. Drew Berry

      It was originally a place to invest in companies. If you think the company has a good idea. Buy if not don’t buy. That’s still the bottom line. Always people willing to buy also people willing to sell. More buyers price goes up. More sellers. Price goes down.

    3. Hal

      It is a rigged game so the rich can become richer

    4. Brandon C

      buy low sell high. buy massive companies and hold. its quite easy and simple with some of these trader apps that have come out. Options trading is a bit more complex and has a lot more moving parts but I find that more fun. More so like real gambling though.

    5. Clark Adams

      People want to buy small portions of a company, someone out there is willing to pay a good price, traders are the people who want to get the pie between the companies real stock price and the foolish persons inflated price

  7. Theorak

    0:42 Those Pigeons are a perfect analogy for what happens when a good deal shows up in high frequency trading. 😀

    1. MelonPlayzYT

      @Poop tf

    2. 3D Maker Kid

      mine! mine! mine!

  8. Simon

    Not sure the NYSE and Pinterest share the same demographic tbh

    1. onderxijz

      They are doing this because Pinterest will launch its IPO, they did the same when Snapchat became public.

    2. Freek Buttz

      Hahahaha I doubt it

  9. FelixOrion

    Interesting topic but I don’t think this was the most… layman friendly script you could’ve put to video.

    1. Jonathan Mueller

      Big companies were using computers to determine changes in the market and trade on the NYSE faster than a human possibly could.

      IEX prevents or at least reduces the reaction time benefit from the computers. All incoming trades must go through the 32 miles of fiber optic cable before it reaches IEX’s system.

      Since the signals cannot travel any faster than about 31% slower than the speed of light (how fast light travels through fiber optic cables) this ensures there is a certain amount of delay, preventing or at least reducing the advantage computers have from instantaneously reacting to changes as they happen. This also helps them to ensure they display more accurate pricing to the public, rather than having computers “beat” the stock exchange and trade before that price is official.

    2. Yngvi Birgisson

      @Jonathan Mueller Thanks!

    3. Jonathan Mueller

      @Richard Clutterbuck You are correct that the coil introduces a general delay and it affects the frequency with which computers can trade. That is actually the main reason why, to eliminate computers trading faster than humans.

      The problem was that companies would place their computers right next to the stock exchange, so the short physical distance helped the computers to be able to process changes to stock prices before the actual exchange could publicly update the price.

      So the goal is to force there to be some physical, impassable buffer so that no matter how physically close you are to the exchange you still have a significant enough delay.

      If it takes 0.1 seconds to receive and send a signal it’s much easier for a computer to frequently sell or buy according to the updating market. If it takes a few seconds to receive and send a signal then a computer is not able to flood the exchange with trades before the price updates are published.

      Financial companies bought up property around the NY Stock Exchange specifically to reduce that computer delay because it’s such a significant advantage. This stock exchange aims to allow people and companies not physically next to the stock exchange to trade more fairly alongside big financial companies.

    4. Daniel Fitzpatrick

      @Jonathan Mueller OK Google u.s. stock exchange

    5. BigBird Music

      Is this the layman test? Guess I’m smarter than I thought.

  10. J0k3r

    HFT ist such a colossal waste of human productiveness to create meaningless “value”.

    1. thought police, get down!

      truth

    2. Benjamin

      How can it be meaningless value when they sell and buy stocks that have value from willing buyers and sellers . Doesn’t that mean now that anything we buy and sell on planet earth creates no value ? Should we stop buying and selling altogether now . Supply and demand dictates price , there are no rules on what one can do with anything of value they own .

    3. XerrolAvengerII

      @Benjamin It’s not unlike someone buying up all the bottled water before a natural disaster (something predictable like a hurricane) then selling it for an inflated price. There’s nothing ‘wrong’ about it from an economics standpoint, but it sure tastes like exploitation.

    4. Blind Bob

      Don’t be dumb enough to believe that, all it does is add delay, it does not protect against “dark -pooling”, you still have to go via a bank or trading house.

    5. Harm Hoeks

      Human potential, time and effort and definitely lost

  11. Richard Allsebrook

    Alternatively, they could forward every trade through the British government – that should delay the process for oh… two years or so…

  12. Cyborg _V2

    Who would win?
    Some of the richest and most powerful companies in the world spending Billions on speeding things up
    Some Coily Bois

    1. Picolas Cage

      To be fair they have the government in their pocket so that’s a real advantage

  13. Daniel Hurtado

    “I [suspect] that we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this ‘paper economy’, not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges.” –James Tobin, July 1984

    1. Ike Okereke

      @DynamicWorlds
      Really?

    2. Ike Okereke

      I don’t get this quote at all.

    3. Caldwell Transport Columbus, GA

      @UserNameAnonymous Second order counter point: A new business spends $1M on inventory and buying equipment and services from other firms in the economy. So the capital is not “wasted” from any perceptive other than the investor. Even the markets and brokers still get their cut, which is the problem. The markets exist to speed the velocity of capital, sometimes into a brick wall.

    4. UserNameAnonymous

      @Caldwell Transport Columbus, GA – I wasn’t implying that 100% of the capital is wasted, necessarily. But you have to view it from the perspective of the consumer and actual goods, not just dollars. If a company spends a bunch of money and uses up a ton of resources to make widgets but nobody wants them, then that’s a waste. The workers could have spent their labor building something that people actually wanted. The raw materials could have been used to build other stuff that could have improved lives.

    5. Caldwell Transport Columbus, GA

      @UserNameAnonymous That happens all the time even under our current system as well. VCs and investors back stupid crap because they get flim-flammed into it.
      What you are describing is free market competition, not capitalism. The capital markets exist today because it used to be necessary to have physical markets and agents do actual trading. That is no longer the case. They exist now because the entire financial system is riddled with leeches that do nothing but draw a small percentage of the overall wealth that flows thru the markets, but are still vast individual fortunes. This is both the very definition of an inefficiency as well as unethical.

  14. David Shi

    Michael Lewis wrote this great book, Flashboys, which delves into HFT and IEX if you want more info.

    1. Suh-Shin hwang

      @Thomas Harris Same topic = ripping off?

    2. Abby Liu

      @Thomas Harris how is talking about something someone else already talked about ripping them off?

    3. Jacob Cornford

      @Thomas Harris Read the book you won’t feel ripped off

    4. Anonynmous

      You should read the response book, “flash boys not so fast” Explains how the original book is a misleading sensationalist piece of trash

    5. Blind Bob

      it’s not, and I know it’s not because I have personally seen some of the “internal” documents and proposals from the time.
      There is even some research papers on this, the PHD ‘s then went out and setup a company.

      I even came up with my own Ideas of how to shave a significant amount of time off a trade, about a year later I saw a patent for the same idea.

      I also know why they use fiber optics and not hardware to delay the signal, it has little to do with the system failing, since you could build redundancy into the system as every stock market already does.
      There are other reasons related to being able to externally manipulate the hardware…. and no I don’t mean “hacking ” into the firmware.

  15. Comic Drake

    I love that the NYSE is advertising their freaking Pinterest.

  16. Brian Cox

    Imagine the day that RFQ came in to the fiber provider. “You want what? 38 miles? Ok, where are we running from and where is it going? Its all in the same 4U rack mount?!”

    1. 野龍

      Though the provider would most likely be, “Damn, you guys are insane! But here’s the quotation.”

    2. Jackalope

      “Well, at least that makes installation easy.”

    3. Vonriel

      Followed by what can only be described as cackling laughter as the truth of what’s being done slowly sinks in. Because let’s be honest, these are probably some of the same providers who helped install the high frequency stuff IEX is attempting to counteract with this solution. They know.

    4. Chris Harrison

      Brian Cox, talk to me about physics in a soft and soothing voice.

  17. Maxx B

    Finally someone found a use for lag.

    1. Mike Mondano

      We should all introduce some lag into our lives.

    2. DynamicWorlds

      _decided they wanted lag, then called up a fiber optics company because…they wanted to pay more for the data to move at light speed?

      Anyone else notice the contradiction?

    3. Mike Mondano

      @DynamicWorlds No. It makes perfect sense. They wanted slower data but not so slow as it would be at less than the speed of electricity (which is not the speed of light, but very fast).

    4. Barberman

      Let me introduce lag compensation

    5. the day

      @Consolidated Freedom so you have no life and need to cheat at a game to kill somebody? Hahahahahahahahaua

  18. GunQuickie

    The best solution would simply be a law that simply says that no person or business can make more than 3 round trip trades on any particular security in a 24 hour period and a maximum of 6 round trip trades in total during any given 24 hours. The markets a intended to be a place where INVESTORS go to INVEST in businesses. It’s turned into a gambling playground for amateurs and a cash cow for corporate traders to milk.

    1. DynamicWorlds

      Or just put a small transaction tax on every trade

  19. roger

    Who would win:
    -A highly trained network of computers with the sole purpose of gaming the system
    -One coily boy

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