Dario PETROVSKIDario PETROVSKIJanuary 26, 2018


Today, it takes 350 milliseconds to complete 7,000 transactions. This is the time a man takes to blink. A transaction can be done in 5 microseconds or 0.000005 seconds. These numbers show that speed has dramatically changed the way financial transactions operate. This speed could be reached following the various technological evolutions. Increased competition in the financial sector resulting of financial deregulation in the 2000s and technological evolutions has led to high frequency trading. Financial actors entering this competition are constantly looking for innovations to reduce time differences in their financial transactions.

As a result, a new war is emerging among practitioners of high-frequency transactions. The speed of information and transactions becomes the main element of the core of high frequency trading. It is on this aspect that the financial players will base themselves in order to stay alive in this fierce competition.

Optical fiber to reach high speed
The search for speed is not new today. Indeed, markets already had means and tools to facilitate and improve the speed of transactions. Telegraph, phone or roller skates, all means was good to save time on transactions and be the first to achieve the best transaction.

The invention of Thomas Peterffy in 1987 completely revolutionized the markets. The program that buys and sells shares automatically has saved a lot of time on transactions. The number of transactions is growing considerably. But the tool that will completely revolutionize the financial sector and allow the rise of high-frequency trading is fiber optics. To show you the importance of its use for financial transactions, we will take the example of Brad Katsuyama who will be the first to condemn the way that fiber optics is used by high frequency traders.

What Brad is going to show is how the stock exchanges are connected to each other by these fibers. He succeeds in appropriating the map of New York by an operator by making him believe that he wants to be his client. The map reveals the different fibers existing in New York and what surprises him is the fibers connecting these stock exchanges.

Stock exchanges in New York unevenly linked by fibers

high frequency tradingBrad Katsuyama places his orders from the south of Manhattan. Its establishment is connected to an optical fiber at normal frequency. When his orders pass through the various stock exchanges, certain financial actors can intercept his orders and manipulate them. These actors are attached to optical fibers allowing high frequency. Thus, as soon as Brad will place an order, high frequency traders will be able to intercept the information of these orders before they are executed.

So, they will manipulate the markets in order to raise stock prices and resell them to Brad. On the map above, we can see where Brad’s orders (blue tracings) and the path of high frequency traders (red tracings) go. Brad observes, therefore, that his shortcomings in the markets are due to the unequal manner in which he is attached to the New York’s Stock Exchanges.

Telecommunication networks have become a key element in high frequency trading. Every year in November, Chicago gather telecom companies to introduce new technologies and building new fibers to gain speed. This is the “big date” for high frequency traders. Some telecommunications companies are creating high-tech “VIP” networks called dark fiber by professionals.

The price to pay for high frequency traders to attach to these high-speed fibers is very high. It varies between $ 3 and $ 5 million a year, knowing that the cost of installing fiber is an average of $ 300 million. The price of attachment to fiber is lower compared to the benefits that high frequency trading can generate.

In the summer of 2010, a telecommunication company directly connected New York to Chicago with a 1200-km private optical fiber. The information then takes 9 milliseconds to cross a third of the United States. This optical fiber has caused some problems for some regions. Sunbury is a city of nearly 10,000 people in the state of Pennsylvania. This region is considered “amish”, that is, it is opposed to technological progress.

When Sunbury Mayor David Persing signed the contract for the fiber installation, he mentioned a facility used for telecommunication. The use for high frequency trading is therefore not mentioned in the contract. The passage of this fiber into the city allows Sunbury to raise $ 14,000 a year. Thousands of contracts are signed with municipalities, individuals and businesses with land along the route. Certain confidentiality clauses are included in the contracts in order to maintain the secrecy of use of the fiber.

Even if fiber is a very useful tool for high frequency traders to gain more and more speed in their transactions, there are alternatives to gain a few milliseconds more.

…and the waves to be even faster
Optical fiber is the basic tool for the passage of information in the context of high frequency trading. But a discovery was made by a telecommunication engineer. Stéphane Tyc is a specialist in radio waves. It specifies the fact that the optical fiber must overlap between the different establishments present in its path.

He thinks that he can gain milliseconds through the air because the waves can go straight contrary to fiber optics. In 2011, he began working on connecting antennas on the road from New York to Chicago. With this installation, it will enable high-frequency traders to earn 1 millisecond over the fiber by reaching a speed of 8 milliseconds back and forth on this route.

Stéphane Tyc also aims to bring together the two largest stock exchanges in Europe. He wants to install a network of antennas to make the information flow at very high speed between London and Frankfort. Its installation must be as precise as possible because every microsecond gained is important in its work.

Antennas must therefore be installed with extreme precision. Moreover, he gains speed by putting his antennas as high as possible. So, he goes looking for height like a church in London where he places his antenna in the steeple or the third tallest building in Chicago on the road from New York to Chicago. The rents to be able to settle in height turn around several tens of thousands of euros per year.

In January 2013, Jump Trading buys an old tower 243 meters high for the price of 5 million euros to install its antennas to pass data between the stock exchanges in Frankfurt and London. This pylon once belonged to the US Army. The Belgian state hoped to reap at least 300,000 euros through the auction of this pylon.

The investment to connect to these antennas is very expensive but it allows to gain more and more speed in the passage of transactions. But there is an even more beneficial technique for high frequency traders. Some companies settle directly inside the stock exchanges. To be able to place their own computers closer to the general server and gain another thousandths of a second, these companies must pay nearly $ 30,000 per month. This method is called colocation. The “roommates” are installed at an equal distance to the nearest millimeter facing the server.

In the sector, there is a real race to speed. High frequency traders are constantly looking for new techniques and ways to earn milliseconds or even microseconds to be the fastest in the market. These actors are ready to spend unimaginable sums to appropriate the necessary tools in order to stay ahead of the race. Speed ​​has become an essential element, even the heart of high frequency trading today.

It is impossible for a human to list high frequency transactions and process their information. The speed has reached a level inappropriate to the primary function of the financial markets. But this practice has become a big problem for some actors and for the financial authorities. It has also acted directly on the markets and caused many dysfunctions and great fears. She has been repeatedly denounced and has been the source of many debates


« Les Nouveaux Loups de Wall Street »


Dario PETROVSKIDario PETROVSKIJanuary 9, 2018


Juventus Turin, AS Roma, Borussia Dortmund, Olympique Lyonnais… Football fans will recognize these prestigious clubs that have won the greatest national and European competitions.

But what about their value on financial markets ?

Football clubs have an economy that functions like any other business: revenues (counters, advertising, radio and television rights, derived products, etc.) and expenses (salaries, player transfers, facilities, etc.) in order to obtain a result. To finance their expenses, some clubs in the world’s leading popular sport have decided to use public savings. Like any good investor, we analyzed whether it is reasonable to grow your savings by investing in these publicly traded clubs.

A not very honourable market

Since February 1992, the STOXX Europe Football stock market index has been used to track the evolution of the main stocks of listed European football clubs. The index is currently composed of 22 stocks including Italian clubs (Juventus Turin, AS Roma), Turks (Fenerbahce, Galatasaray, Besiktas) and the only French club (Olympique Lyonnais).

Evolution of STOXX Europe Football since February 1992 (Source: stoxx.com)

Since its inception in 1992, the football index has performed only 11% while the CAC 40 has performed +171% and the Euro STOXX 50 +203%. The growth of the football market is therefore not evolving to the same extent as the main European companies.

After experiencing strong growth, reaching its highest point in January 1997 at 507 points, the STOXX Europe Football Index fell 79% and has remained stable around 100 points since 2002. We are therefore dealing here with values that are not able to take off and whose trend is difficult to determine.

A heavy dependence on the economic model

The value of a football club share varies mainly according to the sports results and TV rights, which represent more than 50% of a club’s income. Other elements can also have an influence on the price of a football club share such as player transfers, infrastructure financing or even a simple injury to one of the club’s players.

The case of the action of Olympique Lyonnais is very demonstrative of this economic dependence. In February 2007, Olympique Lyonnais Groupe (OL Group) was listed on the stock exchange at a price of 24 euros per share. The objective is to provide funding for the construction of its new stadium of lights, which was scheduled for delivery in 2010. At that time, the OL was the seventh consecutive French champion and was on the first European stage taking part every year in the most prestigious of European competitions: the Champions League. Everything seems to be smiling for this club, which is building trust with investors. However, from 2008 onwards the club lost its French championship title, did not even qualify for the Champions League in 2012, which limited revenue, without forgetting the value of its players bought at a lower gold price, and to top it all off, the delivery of the Stade des Lumières was postponed until 2014. As a result, between 2010 and 2015 the club recorded a cumulative net loss of 140 million euros. Its price will then reach a historic low of €1.68 on April 8, 2013, representing a 93% drop in its value since its introduction. Today, its price is estimated at around 3 euros following better results and a better financial situation. But it will be difficult for the share price to reach its initial value as the football market is so uncertain.

A difficult future

There is a danger to the values of listed football clubs. Indeed, there has been a trend in recent years towards the takeover of the main football clubs by billionaires (Roman Abramovitch bought Chelsea FC in 2003, Frank McCourt bought Olympique de Marseille in 2016…), funds (Paris Saint-Germain has been under the control of a Qatari sovereign fund since 2011, Manchester city was bought by an Abu Dhabi investment fund in 2008…) or even consortia (Milan AC was acquired by a Chinese consortium in 2016).This phenomenon is leading to a new era in the world of football that will put listed clubs in difficulty. These “new billionaire clubs” will spend billions on transfer markets and infrastructure construction, which will put these clubs at the forefront of the world. It will then be difficult for listed clubs with a much lower budget than these billionaire clubs to win titles and act on the transfer market. Indeed, to win the greatest titles, these famous billionaire clubs offer themselves the best players in the world at golden prices (Neymar at PSG for 222M€ is a perfect example). With player prices rising sharply, as are player salaries, it is difficult for listed clubs to operate in this market because of the risk of very high costs, which will not make their financial situation any easier. The gap between these billionaire clubs and listed clubs is widening and the chances of winning the biggest titles for the latter are narrowing. The only way to restore market confidence is to make strong capital gains on the sale of talented players by taking advantage of rising prices on the transfer market.

Restoring the coat of arms by diversifying its activity

Clubs may also have used financial diversification to restore market confidence by acquiring, for example, leisure-oriented companies or fitness centres, as did the Danish club FC Copenhagen, which subsequently saw its turnover increase 47-fold between 1997 and 2008. Its share price then exploded with a 700% increase. Revenue directly from the club’s sports results has become a very small minority. A way to eliminate uncertainty of results. This is what the major Turkish clubs in Istanbul do perfectly. For example, Fenerbahçe, which owns Fenerium, a clothing chain with 64 stores worldwide, generates a profit of around €30 million. Its rival Galatasaray holds a gigantic real estate portfolio. Thanks to this diversification, these clubs have seen their shares increase and have been able to distribute dividends to shareholders.


Looking back, it is very objectively clear that the sporting aspect alone is not a predominant criterion in the choice of investment in a football club share. Indeed, the only criterion for future sporting results is the uncertainty so detested by the markets. However, times are changing and club leaders are realizing that if they want to finance themselves through markets, they will have to diversify their activities. This step therefore consists in transforming the club into a “pseudo-enterprise” in which the result can be more easily evaluated. A large part of the uncertainty will therefore be eliminated, which will certainly attract more investors in the future.



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