(Repeats Wednesday item)
* Currency dealers may move to continent after Brexit
* But computer servers likely to stay in London area
* Banks reluctant to shift gear unless competitors do so too
* Much trading now done without human intervention
* Deep liquidity pool another reason to stay in London
* GRAPHIC - UK cable connections: tmsnrt.rs/2gFgydq
By Jemima Kelly
LONDON, Nov 30 High-speed sub-Atlantic cables
may force banks to keep their armoury of currency trading
hardware in London for some time, even if the dealers themselves
go elsewhere when Britain leaves the European Union.
Many of the world's major financial firms - most of which
have their European headquarters in London - say they are making
contingency plans to move traders and investment bankers to
mainland Europe if the British government does not negotiate
unfettered access to the EU's single market.
But moving their trading infrastructure - essentially the
computer servers that process millions of international currency
deals per second at lightning speed - would be costly, industry
consultants and technology firms say.
Ultra-high speed fibre-optic cables link London and New
York, respectively the world's biggest and second biggest
foreign exchange (FX) dealing centres.
Banks may be reluctant to transfer the equipment from London
to a continental centre - exposing themselves to tiny but
crucial time delays in transactions due to the extra distance
data has to travel - unless their competitors do so too.
So due to the demands of "low latency" or high speed
computer-driven trading, unless all the major banks move at the
same time, none is likely to.
In a market that turns over almost $2 trillion every day in
London alone, every lost nanosecond or sacrificed sliver of
daily currency transaction volume is costly.
If Britain loses the ability to sell financial services to
any other country within the EU, traders and other frontline
staff may move to other financial centres such as Frankfurt.
But humans mediate a relatively small percentage of overall
currency trading these days. Major banks say about 90 percent is
conducted on electronic systems in one way or another, with
around a third involving no human intervention at all -
including the use of algorithmic computer programmes.
After Brexit, there will be no legal or physical need to
shift the computing hubs from the London area as they can
continue operating with machine-driven counterparties inside or
outside the EU. People monitoring this trading can sit anywhere
in the world.
Experts reckon things could eventually change as new
technology erodes the advantage of proximity to the fastest data
links. But for now London has another advantage: a critical mass
of trading activity, providing the liquidity that is vital for
ensuring participants can get in and out of trades fast.
Banks and other firms have set up their matching engines -
computers that process the trades - at data centres in London or
just outside, particularly in Slough, a town about 30 km (20
miles) to the west.
"Liquidity is like a good party. You need a lot of people at
the party, and you need them there at the same time," said Brad
Bailey, research director for capital markets at consultancy
Oliver Wyman. "So you need ... all that volume in the same
Because of London's pre-eminence, Pragma Securities, which
provides algorithmic trading technology, is setting up a new
group of servers in Slough, unperturbed by Britain's EU
"Despite the uncertainty caused by Brexit, we are moving
forward with this large capital expenditure because London ...
hosts the largest data centre ecosystem for low-latency FX
trading applications," said Pragma's Chief Business Officer
"We do not see that changing any time soon... Everyone wants
their trading servers to be where everyone else's are."
With automated trading requiring no human input, high speed
is of the essence. With humans increasingly out of the picture,
their location becomes moot.
"The fastest human can react in about 500 milliseconds; in
the FX market you're dealing in millionths of seconds," said
Bailey. "So (trading firms and banks) can still have their algos
running locally and move their physical and human presence."
Even before the Brexit vote, there were signs that London's
predominance in the currency market was fading. Its share of
global currency trade has fallen to 37 percent from 41 percent
three years ago, according to a Bank for International
Settlements survey released earlier this year.
The race for greater speed may also be fading. Singapore,
for instance, has overtaken Tokyo as the leading Asian currency
trading hub, even though the cables that link it to both London
and New York are longer than those to the Japanese capital.
While in the early days of high-speed trading there was a
race for every fraction of a second, some experts say the
playing field has levelled out and speed now takes second place
Dan Marcus, chief executive of electronic dealing platform
ParFX, said a growing number of trading institutions rely on
superior strategies. "For these firms, firmness and depth of
liquidity are key, rather than superior speed," he said.
This effectively means that if enough banks wanted to move
all their trading operations out of Britain, the speed edge
London has over the rest of Europe because of its proximity to
undersea cables would not be enough to stop a move.
WOODPECKERS AND SQUIRRELS
The future may not belong to cables, which carry data at
around 200,000 km per second, or two thirds of the speed of
light. Microwave signals, which carry data from Britain to
mainland Europe, are around 40 percent faster.
The idea of building microwave towers across the Atlantic in
order to increase the speed of data transmission has even been
floated but this would be hugely costly and difficult.
Microwave technology can also be susceptible to pest
problems. A video posted on the internet shows workers emptying
huge amounts of acorns that had clogged up a microwave dish. The
culprit, it is thought, was either a woodpecker or squirrel.
"Going through the air is much faster, but much more
complicated and much more sensitive to weather and squirrels,"
(editing by Nigel Stephenson and David Stamp)