[darkwater]

But shouldn't proper FHE address most of these concerns? I mean, most of those extra measures are exactly because if you can physically access the server, it's game over. With FHE, if the code is trusted, even tampering with the hardware should not compromise the software.

[seanhunter]

How does FHE help with someone executing a process on the server that affects the latency of your trading algo? eg by sucking up the CPU resources you need to do FHE.

How does FHE help with the fact that regulators generally want single-tenant shared-nothing for registered broker/dealers? Have you tried to explain a technical mitigation like FHE to a financial regulator? I have, there are 2 standard responses:

1) (in the US) "We strongly prefer single-tenant shared nothing. I won't officially say whether or not we deem your technical mitigation of using FHE to be sufficient. If we think it's insufficient we may take regulatory action against you in the future. Us not taking action doesn't mean we think it's sufficient."

2) (in places like Switzerland) "We strongly prefer single-tenant shared nothing. I'm not sure I fully understand the technical mitigation of FHE you are putting in place, but I'm going to increase your regulatory capital reserves. Send us some more white papers describing the solution and we may not increase your capital reserves further".

Singapore is the only exception where you have a regulator who is tech-savvy and will give you a clear answer as to whether something or not is OK.

[konstantinua00]

why would latency matter if the trading we're talking about isn't high-speed?

[seanhunter]

I give a concrete example in the GP post but the reason is that the high-speed people can take advantage of you in certain circumstances if you don’t have extremely accurate timing of things like order placement.

As another example, imagine you are placing an options order on one exchange and a cash hedge on another exchange (eg for a delta hedge). If someone sees one half of your order and has faster execution than you, they can trade ahead of you on the other leg of your trade, which increases your execution cost. This is even more important if you’re doing something like an index options trade on one side and the cash basket (all the stocks in the index) on the hedge side.

The fix for this is to use hi-res exchange timestamps (which the exchange gives you on executed trades) to tune a delay on one leg of your execution so both halves hit at precisely the same time. This ensures that HFTs can’t derive an information advantage from seeing one half of your trade before you place the other half of the order.