From the June 2008 issue of Investment Advisor • Subscribe!

June 1, 2008

Risky Business

Time is money, certainly in the U.S. stock market. In fact, in just a matter of years, the time it takes to process orders has changed from being measured in seconds to milliseconds. "The ability to quickly receive, manage, and relay order book information has become critically important to the competitiveness of exchanges and electronic communication networks," according to a new research note from TABB Group--The Value of a Millisecond: Finding the Optimal Speed of a Trading Infrastructure. The report estimates that 56% of all exchange revenues in 2008 are exposed to latency risk, up from 22% in 2003.

For U.S. equity electronic-trading brokerages, handling the speed of the market is of critical importance, writes Reporter, because "latency impedes a broker's ability to provide best execution." It's going to affect commissions, too. In 2008, according to TABB, 16% of all U.S. institutional equity commissions were exposed to latency risk, totaling $2 billion in revenue, and the stakes are only expected to grow.

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