UBS uses laser beams and 5G to trade stocks

  • UBS is in the early stages of wireless ordering for its US equity trading business.
  • The Swiss bank uses a combination of 5G technology and laser beams to ensure it maintains the fastest speeds at all times.
  • UBS hopes to speed up transactions and reduce the impact of inclement weather by sending orders wirelessly.

From fiber optic cables to dark fiber and microwaves, financial firms have spent much of the decade looking to reduce the speed at which they can trade stocks to fractions of a millisecond.

But the final chapter on how companies aim to improve their trading speed and execute trades more efficiently for their clients reads like something out of a science fiction novel.

UBS has in recent months started using laser beams and millimeter waves, also known as 5G technology, to send orders wirelessly for its US equity trading business. The Swiss bank told Business Insider that the new infrastructure will allow it to send orders faster and reduce the likelihood of inclement weather affecting performance.

The bank said it was working with the three major exchange groups – NYSE, Nasdaq and Cboe Global Markets – to use the technology on their sites. The facility is in New Jersey, where the majority of US stock trading takes place between a handful of data centers.

Fiber optic cables are the most common way to send stock trading orders. Some companies use a more advanced cable, known as dark fiber, while an even smaller subset uses microwave. Laser beams and millimeter waves are the latest innovation. Although the technology is not as efficient over longer distances, the close proximity between New Jersey data centers makes it an ideal location.

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UBS already receives market data wirelessly via 5G technology. However, bad weather sometimes interferes with the millimeter waves, forcing the bank to switch to landlines to receive the data instead. By using a combination of 5G and laser beams, which are more durable in rain and snow, the bank hopes to have a more resilient process for dispatching orders.

“I know the weather better in New Jersey than I do in New York. When it rains in New Jersey, I get pop-ups from multiple companies because we’re moving from wireless to dark fiber,” said Vlad Khandros, global head of market structure. and


liquidity

strategy at UBS. “With the lasers, it should be: what’s the pattern of the post? Rain. Ice. Snow. Should be good.”

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Maintaining high performance on rainy days isn’t the only motivating factor. Khandros said the bank is constantly evaluating ways to improve how it can execute client orders.

The process goes beyond simply meeting regulatory requirements. When thinking about best execution, the bank must consider what customers expect and what competitors are willing to do.

Therefore, companies should always look for the latest technologies in the market.

“It’s an arms race. If it exists, there’s a risk someone else will buy it,” Khandros said. “So we feel compelled to buy it to further improve the quality of execution.”

Still, the bank needs to see results to prove that a full investment is worth it. Khandros said only a small amount of order flow is being sent through the new infrastructure. The bank will monitor the impact of new technology on speed and its ability to capture cash, among other metrics.

For Khandros, the most critical part of any new innovation is being able to demonstrate to clients how it will help lower their trading costs. The space has become increasingly competitive between brokers, Khandros added, as clients are reluctant to spend their own clients’ money on unnecessary services or poor performance.

Khandros said his team is always interested in proving the benefits of an investment for clients.

“What does this actually do to help the customer?” Khandros said. “It has to be compelling, and I want the data to actually back it up.”

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