The stakes are very high; the margin for error is very low, and the technology choices and strategic tradeoffs are complicated and nuanced. Such is the terrain of decision-making that financial Information Technology (IT) managers must negotiate in connecting buildings to support a low-latency trading strategy.

And this points to the first reason that a trading firm or investment bank might elect to contract for a managed service to support low-latency trading, as opposed to opting for a fractional or “dim” fiber offering or using a private dark-fiber network: It takes the edge off the choices. The Service Provider manages the link and its traffic from end to end. The financial company does not need in-house expertise and experience in building-to-building networking technology. The monthly cost over dark fiber may be lessened substantially. The customer gains technical support for maintaining its trading network without having to expand its IT staff to worry about site-to-site links.

Of course, not all managed services are created equal, and a trading firm or investment bank will want to look for a provider with the precise characteristics suited to its unique needs. For example, flexibility in protocol support and the ability to build custom solutions for particular routes or traffic type might be a particularly important requirement. The provider’s support capability (24-by-seven surveillance, fully-staffed network operations center and field operations groups, etc.) will merit scrutiny, as a half-hour of downtime in the middle of the trading day can mean significant dollars in lost revenue for the financial customer. And the selection of a provider demands an assessment of potential hidden sources of latency, such as how the Service Provider configures its network to transport network-management event data from the customer’s link back to the central office. If that traffic is not carried on its own dedicated wavelength, for example, it could inject intolerable delay into the customer’s trading infrastructure.

Ultimately, the trading firm or investment bank—given the competitive hypersensitivity to even nanoseconds of latency in contemporary electronic trading—simply must partner with a provider who has done the due diligence to optimize its network specifically for the low-latency application if a managed service is to deliver sufficient value. Low-latency trading is not at all an application to be consigned to commodity technology and conventional thinking. The last couple of years has seen the emergence of key innovations in optical transport technologies that were designed explicitly to eliminate latency. Their adoption in some networks has clearly delineated which Service Providers can and which cannot deliver managed low-latency services that translate into success in electronic trading for financial customers.

Fractional/dim services and private-fiber approaches have valuable attributes, too, that might prove more beneficial than a fully managed service would to some financial companies or for some of a given company’s routes. We will look in our next installments at these two options for supporting low-latency trading.

Read more on low-latency optical transport here.