I have recently come across this paper by Battalio et al. "Can Brokers Have it all? On the Relation between Make Take Fees & Limit Order Execution Quality" and realized how little I know about the "plumbing" connecting the exchanges (I'm taking about US equities.)

After reading this paper I have been thinking about what kind of delay/latency is there when trading simultaneously on several exchanges. Assuming that I have already decided the Limit Order sizes and the target venues I want to send them to, and assuming that I send the Limit Orders to the various exchanges at the same time, what kind of delay can I expect in the time-stamp of the "Limit Order Submission" message reported in the data-feed of the various exchanges? I assume that it depends from what kind of connection I have to the exchange, from the time of day, from the type of stock and so forth but I'm still curious about a range of possible values.


The round-trip latency from point A to a matching engine at point B can be thought of being comprised of two components:

$RTT_{total,A \rightarrow B} = RTT_{network\_transit,A \rightarrow B} + MPL_{matching\_engine,B}$

Where $RTT$ is the round-trip time and $MPL$ is the message processing latency (how long it takes to receive a message and produce an event). The total round trip time, $RTT_{total}$ would be measured from the moment it leaves your network interface (i.e., excluding whatever internal processing day your software may have) to the moment your network interface receives the message indicating the action has been processed. You might find my other answer regarding latency informative: HFT - How to define and measure latency?.

Now, with respect to $RTT_{total}$: when communicating with an exchange in an different data center transit latency will almost always dominate. Matching engines are very fast, but moving packets can be relatively slow in comparison. For example, from Carteret (where NASDAQ hosts their matching engines) to Mahwah (where NYSE hosts theirs) is approximately 45 miles (rough measurement from Google Maps). The best case round-trip transit latency is about 500$us$ (approximately 250$us$ one way), but this is not achievable due to frictions related to network transit: (1) fiber doesn't run as the crow flies; (2) switches and routers add latency along the way; and, (3) packets don't travel at the speed of light through fiber (I believe it is about 70% of $c$).

Now, Mahwah and Carteret are the two extreme cases as they are the two data centers furtherest away from each other. The BATS data center is located in Weehawken at NY5. This data center is about at the half-way point between Mahwah and Carteret so you would be looking at a best-case (unachievable) round-trip latency of about 250$us$.

Transit latency is also the only component directly under the control of the participant. $MPL_{matching\_engine}$ is largely a constant for all participants (although, not always due to matching engine architecture and loading of order entry gateways). $RTT_{network\_transit}$, on the other hand, can be manipulated by reducing 2 of the 3 frictions above. The revelation made in "Flash Boys" was well known throughout The Street (it seems Brad and the IEX guys were somewhat late to the party): there was a lot of low-hanging fruit in minimizing the impact of the first friction: the path that the fiber takes. By doing this savvy participants can be closer on a relative-basis to other matching engines even if they are located directly next to their competitors in real-space.

Remember, this discussion is almost exclusively limited to cross-data center messaging. There is very little ability to minimize the impact of $RTT_{network\_transit}$ within a single data center because: (1) the length of fiber interconnects are largely normalized for all cross-connected participants; and, (2) there are very few network elements between participant and matching engine. This means that internal latency to a specific participant is the most important (in other words, faster software).

All that being said, to answer your question specifically is not something many folks will do as latency numbers are held close to the vest. However, the reason for all of the above is to demonstrate to you that you can easily estimate it by simply estimating $RTT_{network\_transit}$. I think you'll find that, for example, $RTT_{total,NASDAQ \rightarrow ARCA}$ is going to be between 600$us$ and 1.5$ms$ assuming that packets travel through fiber at $0.7c$ and then depending on what penalty you want to add for the path of the fiber.

  • $\begingroup$ Thank you for taking the time and for the detailed answer: it's a lot of food for my thoughts. I thought all along that, due to traffic and other issues, we were still talking about tens of milliseconds for round trip total. Very interesting. $\endgroup$
    – g_puffo
    Jul 15 '15 at 17:53
  • $\begingroup$ The real transit latency between the CME in Aurora, IL and the US equities markets is going to be about 13$us$ based on numbers from Spread Networks: spreadnetworks.com/products/ultra-low-latency-services. However, latencies within the US equites complex itself won't approach that at all. $\endgroup$ Jul 15 '15 at 18:03
  • $\begingroup$ @LouisMarascio I believe you meant ms, not us. $\endgroup$
    – madilyn
    Jul 16 '15 at 9:29
  • 1
    $\begingroup$ @madilyn Good catch. I did indeed mean 13$ms$. I can't seem to edit my comment anymore though. Thanks! $\endgroup$ Jul 16 '15 at 15:22

Assuming you are not doing HFT, seconds scale, then you could measure it. By placing a limit order and then monitoring its appearance in Level 2 market depth quotes. During quiet market, with limit price away from spread and not crowded.

  • $\begingroup$ Thanks for your feedback; how about HFT? $\endgroup$
    – g_puffo
    Jul 14 '15 at 21:56
  • $\begingroup$ HFT is up to microseconds scale. Actual value of RTT mentioned above does not matter if you want your orders to arrive to each exchange at the same time to avoid HFT sharks. $\endgroup$ Jul 15 '15 at 22:14

I'm no expert in this topic, but I'm not sure people will be willing to share this kind of data openly, given a lot of HFT shops use such "trade secrets" to gain a competitive edge. Incidentally, I've been reading the book "Flash Boys" and there are some numbers related to your query in there. For instance, when you submit a trade from downtown Manhattan, it reaches BATS first, before going elsewhere...


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