The Company That Sped Up U.S. Markets in ‘Flash Boys’ Is Eyeing BrazilBy
Spread Networks service uses undersea cable link to America
Network is poised to lure high-speed arbitrage traders
Spread Networks LLC was thrust into the spotlight by Michael Lewis, who wrote in his book “Flash Boys” about the company’s work drilling through mountains and under parking lots to run a straighter -- and therefore faster -- fiber-optic network connecting major exchanges on the U.S. East Coast and near Chicago.
For its next act, Spread aims to accelerate trading between the U.S. and Brazil.
The company teamed up with Seaborn Networks, which built, owns and operates the undersea cable running thousands of miles through the Atlantic Ocean. Spread is the exclusive reseller of access to the network for customers in the financial industry. The service was scheduled to be switched on Oct. 1.
“It’s one big, beautiful, route,” said Dan Spivey, the founder and chief executive officer of Spread Networks, based in Ridgeland, Mississippi. “It’s really going to be first class.”
The fastest traders in modern markets place orders in tiny fractions of a second and thus require high-speed networks to keep up with the competition. Seaborn believes its route between Brazil and the U.S. will be the fastest for some time, potentially making it a must-have for traders seeking to profit from fleeting arbitrage opportunities between exchanges in the two nations.
“Based on everything we see, we are very confident that for a meaningful period of time -- taking into account all other plans to build -- our all-fiber solution end-to-end beats any other feasible approach to address the fastest connection between these two markets,” said Larry Schwartz, chairman and chief executive officer of Seaborn, based in Beverly, Massachusetts.
Access to the route costs $55,000 per month, according to Spivey. There is also a $45,000 one-time fee at the beginning. Selling the service to traders is only part of the business for Seaborn. It’s also providing access on the route to non-financial companies, including Telecom Italia SPA, Schwartz said.
Other companies provide access to Brazil for traders, including McLean, Virginia-based GTT Communications Inc., which bought high-speed network provider Perseus Inc. earlier this year. It “remains to be seen” if the Seaborn and Spread Networks route will be faster than what GTT has to offer, said Jeff Mezger, senior director of product management at GTT. GTT has various product offerings for customers and not all traders are focused solely on speed, he said.
“Perseus brought us into a number of new markets with Brazil being a key area of focus for us,” said Gina Nomellini, chief marketing officer at McLean, Virginia-based GTT.
As documented in “Flash Boys,” Spread ran its fiber line between major exchanges just outside Chicago and New York. That helped high-speed traders arbitrage small price differentials on similar products such as S&P 500 futures from suburban Chicago where CME Group Inc.’s matching engine is and equities and exchange-traded funds on stock exchanges in data centers in New Jersey, for example. That Spread line is no longer at the cutting-edge for transmitting information between those exchanges, however, overtaken by microwave towers that can send data even quicker.
Traders have some arbitrage opportunities in the U.S. to Brazil route, including trading equities in Brazil and corresponding American depository receipts in the U.S., Mezger said. There are also arbitrage possibilities in commodities and foreign exchange products, he said.
Seaborn, Spread and GTT may benefit as Brazil rebounds from its worst recession on record. “There’s a sense of renewed optimism,” Mezger said, adding that there is “a renewed interest in foreign firms accessing and trading in the Brazilian markets.”
— With assistance by David Biller