High-frequency trading companies are pushing the limits of technology to gain a competitive edge in the financial markets. Recently, major high-frequency trading firms such as Jump Trading and Virtu Financial have been accused of exploiting experimental shortwave radio licenses from the Federal Communications Commission (FCC) to build illegal commercial networks for trading.
Skywave Networks alleges that these firms used fraudulent methods to obtain experimental licenses, which offer greater bandwidth and enable more efficient shortwave signal transmissions, thereby providing a 9-millisecond advantage over the market. This effectively allows them to dominate high-frequency trading by minimizing latency in trading signals.
Skywave claims the contested experimental licenses, unlike their commercial ones, do not impose costly transmission power requirements, enabling competitors to bypass FCC regulations. They argue that this illicit use of experimental licenses for building trading networks perpetrates unfair competition, leading to significant financial losses for Skywave.
The speed of information transmission is crucial in high-frequency trading, as traders profit from minute time differences in price signals across exchanges. Skywave discovered, through a tool from Deutsche Börse, that trading involving shortwave networks showed evidence of faster signal transmission, underscoring the competitive edge achieved by the accused firms.
Furthermore, Skywave alleges that these firms are using shell companies to operate a shortwave transmission station in Ontario, Canada, linking a wider trading network without proper licensing.