The Long Legs of the Stockmarket
By now the story is famous of how Paul Julius von Reuter started out his news agency using homing pigeons to carry stock market information between the exchanges of Paris and Berlin. At a time that
the telegraphic connection between the two was yet to established, Reuters found that homing pigeons were able to deliver the messages much faster than the post train. The pigeons flew over all the obsta- cles on earth, high above the trees and elevated above the people of France and Germany, carrying bulks of financial data, from and to the stockmarkets.
Reuter was well aware that traders who were “first to market” with any news, or knew about an event on another exchange before anyone else, were at a huge advantage. So with his pigeons Reuter fa- cilitated arbitrage - the practice of taking advantage of a price between two or more markets and acting upon this before anyone else, deriving profit from the difference between market prices. The increase in speed by using the pigeons was groundbreaking. Reuter quickly understood that in a situation where speed can almost literally turn into money, speed itself becomes desirable. It shows that already then speed, connectivity and capital were inextricably linked.
Nowadays it’s no longer pigeons facilitating that speed, but vast computerised networks between
the stock exchanges. High-frequency trading uses powerful computers to transact large numbers of orders at very fast speeds using complex algorithms to analyse multiple markets. The algorithms then execute orders based on different market conditions. Traders with the fastest execution speeds are more profitable than traders with slower execution speeds. Many of these algorithms are quite simple arbitrag- es which could previously have been performed at lower frequency—more than creating a new smarter breakthrough algorithm, high frequency trading is simply about who can execute the algorithms fastest.
Markets have become complex ecologies in which millions of these algorithms are interacting and competing - observing each other and reacting to each others behaviour in milliseconds. Just like pigeons, these algorithms like to flock. If one moves the other way, the others quickly respond and join. It’s a world that exists of codes endlessly talking and responding to each other, just like a school of fish or a flock of birds would do. A conversation too fast for humans to be interpreted. In the blink of
an eye millions of transactions have already taken place. Far beyond the comprehension speed of the human mind. These codes no longer need to be interpreted or to bear signifiers, instead they exist only as signs for themselves, feeding their own autocatalysis.
Now, just like in the time of Reuter, financial in- formation is again flying over our heads. Approxi- mately an hours drive from Brussels, close to the North Sea near a little village called Veurne a high mast is towering above the landscape. Commonly referred to as the NATO tower by residents, it was actually built by the US army in the 1970s to facilitate cold war communications. The tower, no longer in use, meant high maintenance costs for the Belgian government, and in 2012 - motivated by austerity they decided to auction the dilapidat- ed structure off. Hoping they would still be able to make around 400.000 euro, the starting bid was set at 225.000 euro. But as the auction commenced it soon turned out that to their own surprise, the bid was quickly doubled. Only half an hour later the price had already gone up to 700.000. Then 1 million was offered, then 2 million. It became clear that a bidding war had broken out. leaving the gov- ernment baffled - who wanted to spend this much money on this old tower? And what did they want to do with it?
Ever since, somewhat of a war has broken out between different companies buying up high struc- tures to facilitate High Frequency Trading. Belgium, located exactly in the middle of London and Frank- furt, the two main financial centres in Europe turns out to be the site of a bitter war between compa- nies trying to connect the London Exchange and the Frankfurt exchange via microwave networks.
In the ever ongoing quest for speed, the glass fibre cable networks that used to send the signals be- tween these exchanges were no longer considered fast enough. Data in glass fibre optic cables travels about 50% slower than these microwaves beamed through the atmosphere. Therefore obtain and advantage over the competitors microwaves provided the answer. Towers and high structures between all the major exchanges were bought up and rigged with dish- es that would pass on the signals via towers between the exchanges. Microwave require a line of sight from one antenna and to the next, continuously passing on the signal from one tower to the other.
The dish almost functions like a retina, receiving the light-wave but then sending and mirroring it to the next. Like a network of prying eyes holding close watch over one another. Looking and mirroring, looking and mirror- ing. These myopic eyes, installed high in the sky, sup- ported by huge metal structures have placed their feet firmly into the ground. Like the NATO-tower often part of old networks used for military communication and data gathering. Now a new occupational war has un- folded. As tall towers are rare and therefore expensive competition for the fastest connection speed is high. These companies do not only buy the towers to improve their own network, but also to just ‘occupy’ a tower to prevent competitors from using it, marking their territory across Belgium.
These however are not the first wireless networks sending financial data over great distances to come into existence. Strikingly, already in 1792 a wireless system was invented that could send messages throughout Europe and America at the speed of an aeroplane. The optical telegraph, a system of a network of towers, with at the top a semaphore - machines with mechanical arms mimicking the human body. Underneath the sema- phore was an operator, functioning as the eyes of the machine. With a telescope he would closely monitor the tower behind him in the chain. As soon as there was ac- tivity, the operator copied the signals and passed them on. Of the meaning of the message, the operator had no clue, he merely functioned as cog in the machine, copy- ing this semantic system based on the human body, passing round bits of information. In 1829 this system was employed by the Merchants Exchange Company of New York (now the New York Stock Exchange) to signal information to the exchange about boats arriving at the coast of the US - quickly signalling the information to the exchange where it was acted upon immediately.
Height capital and speed have always been interlinked. Even in the now abandoned trading pit, this wild and chaotic environment where traders used to signal shout at each other, frantically buying and selling. Here height speed and sight-lines played an incredibly important role as well. It was seen and be seen. Physical size mattered, as taller traders were much easier to see, and able to trade at much faster speeds. Their size allowed them overlook the pit while remaining open for communication. This became so important that at certain point traders started wearing heels to stand out from the crowd, up until the point that accidents started happened, and a regulation of heel size was put in place. Basketball and football players were employed. But when high frequency trading took over the old fashioned trading pitt emptied.
Now these giants from the stockmarket have reappeared but in a different shape, all across the landscape in Belgium, looking at each other, keeping close watch over one another - slowly turning the landscape into a trading floor. And if you stand next to one, you no longer hear any of the shouting we used to be so familiar with, but only a soft, gentle hum.