private exchanges created by banks and brokers that did not have to report in real time what trading activities took place within them —
“Latency” was simply the time between the moment a signal was sent and when it was received. Several factors determined the latency of a trading system: the boxes, the logic and the lines. The boxes were the machinery the signals passed through on their way from Point A to Point B: the computer servers and signal amplifiers and switches. The logic was the software, the code instructions that operated the boxes. Ryan didn’t know much about software, except that more and more it seemed to be written by guys with thick Russian accents. The lines were the glass fiber-optic cables that carried the information from one box to another. The single-biggest determinant of speed was the length of the fiber, or the distance the signal needed to travel.
The frantic competition for nanoseconds, clients’ trying to get their machines closer to the servers within the exchanges, the tens of millions being spent by high-frequency traders for tiny increments of speed. The U.S. stock market was now a class system of haves and have-nots, only what was had was not money but speed (which led to money). The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all.
From the point of view of the most sophisticated traders, the stock market wasn’t a mechanism for channeling capital to productive enterprise but a puzzle to be solved…
–Michael Lewis
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