“Fractional,” “dim,” “passive,” “colors,” “lambdas” … there are a lot of names for this flavor of available service for supporting low-latency trading, and there are a lot of reasons why a trading firm or investment bank might choose to take this approach.

In a fractional/dim service, a trading firm or investment bank contracts with a network operator for a specific “color” of light across a fiber-optic network that links locations in a metro application that are strategically important to the customer. The Service Provider essentially places an optical multiplexer on a pair of fibers that has inputs for multiple colors and combines them for transport across a pair of fiber. On the other end, they place a demultiplexer to break out individual client handoffs. Generally, a coarse wavelength division multiplexing (CWDM) multiplexer allows four, eight or 16 colors, and a dense WDM (DWDM) multiplexer allows anywhere from four to 120 colors. The switches and optics that are plugged into the multiplexers are owned and operated by the financial firm; the financial company maintains the freedom to select the technology used and to change the bandwidth and protocols along their color.

Some financial companies find the fractional/dim offering to be the ideal, best-of-both-worlds balance of benefits delivered by managed services and private dark-fiber networks—without some of the perceived drawbacks of those two options:

• In a fully managed service, the Service Provider owns and maintains all of the electronics. Carriers are generally interested in maximizing the number of customers they can have across a link. As a result, they typically select equipment that is optimized for creating a large number of circuits and not optimized for latency. With the fractional/dim service, the financial firm is responsible for the equipment and can select the optimal electronics for their configuration.
• To realize ongoing latency improvements over time, a circuit must have its equipment upgraded as new technologies are being offered. Service Providers may be more hesitant to undergo the complex task of swapping out equipment. With the fractional/dim service, it effectively creates for the customer a private slice of a dark-fiber network where the financial firm is responsible for the equipment and can upgrade/change their electronics at any time—as long as the hand-off is the same “color” to the fractional provider.
• When using a fully managed service, support for the diverse traffic types might be limited to particular protocols or wavelengths. The fractional/dim service, on the other hand, creates a flexible, protocol-agnostic channel for the customer.  If the customer wants to send the Infiniband protocol across its “color” of light, then it simply selects the electronics that output that protocol.
• For a dark-fiber network, the financial company has to invest in an entire pair of fibers and the equipment to light it. In a fractional/dim service, the firm can gain the latency benefits offered by combining the shortest route with the optimal equipment but avoids the high cost of leasing an entire pair of fibers.

Easily customizable and relatively affordable, fractional/dim services comprise a critical category in the menu of solutions that a trading firm or investment bank might consider in building its trading infrastructure. Although we discussed the benefits above, there are also reasons why a firm may choose to select a different option—like security, cost, complete flexibility and management. Fully managed services were examined in the previous installment of this series, and we will explore dark fiber next time.