I just returned from 3 back-to-back financial trading conferences in New York City, with a refreshed perspective on the state of low-latency networking of financial institutions.

The field of low-latency networking for financial players continues to evolve and innovate at a relentless pace. Just a little over a year ago, trades were won or lost by milliseconds. By the end of the year, that was shaved to microseconds. At the conferences, I was told that today 250ns can make the difference between winning and losing a trade. Times have changed, indeed. With this new business reality comes increased focus on every source of latency in a path between two points. I say “two points”, as there are a wide variety of locations and business sites being connected in the financial realm, including but not limited to exchanges, information feeds, co-location providers, hedge funds, broker/dealers, etc. It is no longer sufficient to simply upgrade routers, or buy the latest multi-core processor based computer blades. All sources of latency must be minimized.

The three major sources of delay in getting between two points in a financial district are 1) fiber optic cable, 2) proximity, and 3) transport delays.

  1. Fiber optic delay is simply the time the data spends in the fiber optic cable. The shorter the cable, the less the delay. While cables are envisioned to run directly between two locations, the truth is much less ideal. Financial districts are a complex rats nests of fiber cables crisscrossing a city, crossing roads, going up and down manholes, and along available easements. Shortening the network’s fiber length often means finding a dark fiber provider that has pieced together a shorter route.
  2. Proximity delay is how close you can get to the available fiber access points. It is a basic geometric problem. There can only be so much real estate nearby a fiber junction, and locating your equipment in buildings closest to this point lowers the delay, often at a co-location provider’s site.
  3. Transport delay is the amount of latency that is added by any and all optical gear that the data encounters as it is transported along the fiber. In the past, when trade execution times were in the seconds, the transport delay was consider inconsequential. There is a misconception that data travels at the speed of light in a fiber, so there is no real way of speeding it up. In reality, transport delay is a real contributor to path latency, and it can be significantly lowered with a variety of strategies.
The fiber optic link between two financial sites is anything but bare cable. There are several optical transport functions that are needed for one’s data to ride on a fiber: 1) Color conversion, 2) Optical amplification, 3) Dispersion compensation, and 4) Electrical regeneration.
  1. The majority of optical transport links today are Wavelength Division Multiplexed (WDM), which means everyone is assigned a color channel. In order to transport one’s data over a WDM network, it must first be converted from grey to a color. This function is called “transponding”. If done incorrectly, milliseconds can be incurred here. ADVA Optical Networking has a wide range of technologies that enable our transponder latencies to be best-in-class, from high nanoseconds to low microseconds, depending upon functions needed.An often overlooked feature of color conversion is “muxponding”, or the aggregation of lower speed traffic into a higher speed signal. For example, today most information feeds are 1Gbit/s, yet most transport links are 10Gbit/s. So, frequently 10 different information feeds are squeezed into a single transport color. The standard way of doing this is ODU encapsulation, which can add double digit microseconds to a link, on each end. ADVA Optical Networking has proprietary encapsulation techniques, in addition to standard offerings, the allow best-in-class muxponding.
  2. A signal traveling down an optical fiber gets smaller and smaller with each kilometer of distance. Optical amplifiers are used to boost the signal as it weakens. Traditionally, a type of optical amplifier called and EDFA (Erbium Doped Fiber Amplifier) is used, and the delay through EDFA’s was considered negligible. However, in today’s trading environment where every nanosecond counts, the hundreds of nanoseconds incurred at each amplifier along a path can no longer be ignored. Some high gain, dual stage EDFA’s can have delays in the low microseconds. ADVA Optical Networking is one of the few optical transport vendors that still builds their own amplifiers today, allowing us to offer exclusive low-latency amplifier designs with delays in the nanoseconds.
  3. Just as rain in the sky, or glass prisms can spread light into a rainbow of colors, so do fiber optic cables. This smearing of an optical data signal into multiple colors is predominately an issue at 10Gbits/s, and can cause a signal’s assigned color to bleed into neighboring channels. This prism effect is called Chromatic Dispersion (CD). Traditionally, long spools of a special type of fiber called Dispersion Compensating Fiber (DCF) has been used to reverse the smearing of colors. However, as these spools can add up to hundreds of additional kilometers of fiber in a path, they are poorly suited to low-latency applications.ADVA Optical Networking has developed alternative dispersion compensation techniques that remove the need for large spools of DCF – Fiber Bragg Gratings (FBG’s). While a full review of FBG technology is beyond the scope of this blog entry, FBG’s can be thought of as a reverse prism written into a piece of fiber optic cable less than a meter long. They essentially have negligible delay, and greatly reduce the end-to-end latency of a path.
  4. Finally, even with the help of optical amplification and dispersion compensation, on longer links a signal will degrade to the point where it needs to be regenerated. How the signal gets regenerated greatly determines the additional path delay incurred. Traditional regeneration techniques can add hundreds of microseconds of unnecessary delay. ADVA Optical Networking has developed a large family of low-latency regenerators that use proprietary technology to reduce latencies into the nanoseconds.
Now, more than ever, latency is key to financial business models, and every nanosecond counts. This blog entry has but touched on the complex topic of sources of latency in optical transport networks. To learn more, there are several sources I can highly recommend:

First stop should be ADVA’s low-latency landing page here.

Next, ADVA hosted a drill-down session at the A-team Insight Exchange on April 26th that included representatives from each piece of the low-latency puzzle: Dark fiber, co-location, optical transport, and high speed switching. You can find a copy of the slide deck here.

Finally, ADVA hosted a webinar on low-latency networking. Click here to listen.