The Race to the Speed of Light Is Acceleratingby
Tower purchases a 5% stake in the company, while IMC owns 20%
New Line Networks, Vigilant also build microwave networks
Tower Research Capital LLC has bought a stake in a company that builds microwave radio systems for buying and selling in electronic markets, helping the network operator compete in a race to transmit data at speeds ever closer to the speed of light.
Tower bought a 5 percent share of McKay Brothers, a small, closely held firm that designs data networks for trading companies from its offices in Oakland, California, Geneva and Paris, according to an e-mailed statement on Wednesday. Dutch firm IMC BV bought a 20 percent stake last year. The amount of the investment was not disclosed.
There are signs that the growing cost of building the fastest microwave links between exchange data centers outweighs the returns for some companies. Trading firms are investing in machine learning and other strategies to get an edge, while outsourcing specialized technology to companies like McKay.
Meanwhile the revenue available to algorithmic traders is falling in some key markets. In U.S. stocks, for example, market makers earned $1.1 billion of revenue last year, compared with $7.2 billion in 2009, according to Tabb Group estimates.
McKay says that while Tower and IMC will share the financial risk, they won’t get a faster connection than any other customer. New York-based Tower was founded in 1998 by Mark Gorton, who had worked as a fixed-income proprietary trader at Credit Suisse First Boston and also founded file-sharing program called Lime Wire. The speed trader is said to be part of a joint venture dubbed Go West that wants to build a faster data network between Chicago and Tokyo.
McKay will stay independent under co-founders Stephane Tyc and Bob Meade. The company says it has sufficient funding for now.
“We will spend all the money we earn to make the lines as fast as we can,” Tyc said in a phone interview.
McKay believes its model makes markets fairer because the service saves traders the exorbitant expense of building their own microwave radio systems, meaning more of them can afford to compete and take part in the markets. That way trading isn’t restricted to a few, rich companies.
The company has competition, of course: New Line Networks, a joint venture between U.S. financial firms Jump Trading and KCG Holdings, and Vigilant Global, which is part of Chicago-based DRW Holdings, also build microwave data networks.