Friday, April 15, 2005

Information as thing

I've written about information-as-thing in the past and, in general, I'm a fan of moving study towards practice and performance. That said, in certain cases information has tangible components that have a profound impact on ensuing social and professional practices. A common example is the materiality of certain documents: regardless of what books contain, the physical objects have to be handled in a particular manner. With the increase in electronic data we now have to deal with "virtual materiality." I recently came across an interesting report/comment letter prepared in response to a ongoing debate within the financial securities community. The issue is the introduction of "penny quoting" for options pricing. As it stands, most options and securities are quotes at 10-cent intervals. The SEC is considering proposals to introduce penny quoting to drive the theoretical efficiency of the markets. From a policy perspective, penny quoting makes sense. Unfortunately, there is a profound impact from an information perspective. Penny quoting will require a far greater number of quotations from market makers. This wrinkle has Reuters quite concerned. It seems that quote providers are already struggling to keep up with recent shifts in trading behaviour (e.g., smaller lots traded more frequently and computer-driven automatic--or "algo"--trading). Things could get worse:

"If quoting in pennies is approved, and the minimum price increment for the BBO [best bid, best offer] is changed to one cent, Reuters estimates that the data rate of the BBO could increase by as much as 100% and reach 89,000 mps by June 2005. Bandwidth usage cold be as high as 18,000 kilobytes by June 2005. Penny quoting would cause the full OPRA feed to increase immediately by 100% and to reach 124,000 mps and 25,000 kilobytes in bandwidth by June 2005." (pg. 12)

Yikes! These are some big numbers. To put this all in perspective, I talked to a colleague who has some experience with ticker plants. He noted that to support their quotation feed from NASDAQ required some pretty hard-core hardware (including in-memory databases), gigabit Ethernet infrastructure with level 3 switches, and 9 T1s (~216 telephone lines).

Given the importance of the markets for our economy, and the importance of this very basic information (quotations), it seems that the physicality of virtual information is, indeed, an issue.

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