Bringing private wires into the 21st century

A recent blog post from Colt highlighted the way trading floors have changed over the last few decades – what was once a profession characterised by floors of people shouting orders across a seething mass of traders has transformed into electronic trading, algorithms and mathematics PhDs. As with any industry, things change, move on and develop. However all is not as it seems. Whilst the majority of traders operate electronically now, private wire connections are still using technology that is, at best, 20 years old. How has this happened? And what can be done about it?

Private wire connections have been around as long as telephone-based trading has. They were upgraded to a point but when the switch to IP took place, these connections were left behind. Traders don’t want to be out of communication with their counterparties for any length of time and banks don’t want to temporarily lose a revenue stream. As the pace of evolution of trading technology increased exponentially, so the private wires were left further and further in the technological past.

Consequently, global private wire connections are still running on legacy technology – almost all other trading connections use IP – and this has huge impacts on productivity, reliability and disaster recovery. Whilst the world’s trading infrastructure has evolved and developed, taking into consideration high-speed connections, mobility and usability, all private wires are still sending voice thorough old TDM lines which are increasingly not fit for purpose.

Clearly moving to IP-based connections has benefits: the ability to route calls means traders don’t need to physically sit at their desks waiting for a call, working remotely becomes a possibility, disaster recovery is simplified and compliance with market surveillance legislation is made considerably easier.

This is recognised as a legitimate problem by the industry but the current mooted solution is not a palatable one. Converting these connections to IP would mean that newer connections are unable to communicate with the old digital ones. This means that the upgrade would have to be done simultaneously, globally. Clearly shutting down private wire connections and upgrading en masse poses so many problems as to make it unworkable. There needs to be a solution which enables private wires to be migrated without the whole network having to be taken down.

Trading technology is changing and voice is being left behind. The recent closure of CME’s open outcry floors highlights how far we’ve come in the last 20 years. While voice trading will always have a place on the trading floor, the industry has fully embraced IP and it’s time private wire connections caught up. It’s only through a phased, progressive approach to migration that this can occur. Without the benefits of mobility and security whilst maintaining service, private wire traders might go the way of the open outcry traders. Just as the CME cut its ties with the 19th Century, it’s time private wires moved into the 21st.