In Celtic and Norse mythology, a revenant is a spirit that is brought to life. One market marker firm, Mosaic Finance, is claiming that a revenant-like ‘ghost in the machine’ can create a 3.2 nanosecond latency advantage of orders on Eurex, a leading European derivatives exchange. They also claim this three billionth of a second head start has diverted €75 to €100M per year since 2022 from market participants behaving orderly. So why would Eurex allow this? Mosaic Finance has a theory here as well. The technique to do this requires buying 3x times the ‘normal’ exchange connectivity. At a cost of €72,000 per year per Order Entry connection, and with other high-frequency trading (HFT) firms getting in on the act, this adds up to a significant potential revenue stream. But if this is illegal activity (Eurex refutes this), what is the cost terms of market confidence? Stakes are certainly high.

According to media reports, when Eurex denied the issue Mosaic Finance took its case to Eurex’s supervisor, a German state-level supervisory authority. The supervisory authority’s court refused to hear the case citing Germany exchange law tasking it to act “solely in the public interest” rather than on behalf of an individual firm. A surprising response considering Mosaic Finance told us that it is calling out what it believes is an illegal activity that effectively is a “hacking of the Eurex network.” If so, they would not be the only market participant to suffer monetary loss potentially and on a wider-scale, activities like this can undermine faith in fair markets for all.

Despite some negative connotations around HFT in the mainstream media, research from the European Central Bank noted modern liquidity suppliers are predominantly HFTs and research from the Economic & Social Research Council (ESRC) found that “available evidence indicates that HFT and algorithmic trading may have several beneficial effects on markets”. This case is not about curtailing HFT activity. Mosaic Finance has since filed a complaint with the European Securities and Market Authority (ESMA) making clear that the issue “may affect confidence in the effectiveness of secondary-market surveillance” and requesting “urgent intervention.”

This is not the first time a firm employing HFT strategies has been called out for potentially gaming the system. The most recent case is an accusation from the Securities and Exchange board of India (SEBI) that Jane Street, a quantitative trading firm, made illegal gains from “an international, well-planned and sinister scheme”, so SEBI has ordered the seizure of $570 million from the firm and imposed a temporary trading ban on the firm. Jane street made more than $4 billion from India in the last two years. A court battle between Jane Street and Millennium Management revealed how lucrative the market was, prompting regulators to investigate.

Commenting on the action a partner at KS Legal & Associates said, “The regulator’s heart is in the right place, but it’s playing catch up in a market where milliseconds matter.”

The European Commission may already be thinking that achieving a unified European Financial Union requires EU-level supervision of exchanges. In April the EC published a consultation asking for feedback on EU-level supervision - with ESMA mentioned.

Travelling Back in Time

But how did Mosaic Finance first identify this issue? According to a whitepaper by Mosaic Finance, it was data released by Eurex’s parent Deutsch Borse, which tipped them off. The data only made sense if someone either had a time machine or was gaming the system. The data showed the fastest participants had decreased reaction time from 20 nanoseconds to 2 nanoseconds in the last three years but also showed reaction times of less than zero.

While 2 nanoseconds is extremely fast, it is do-able – firms can co-locate in the exchange data center, use advanced technology approaches like kernel-by-pass libraries for TCP/IP acceleration and FPGAs or even ASIC to parse and filter data. But this won’t let someone react to a market event that had not yet happened.

Mosaic Finance’s hypothesis is that some market participants were sending packets continuously, which, like ghosts, were invisible to detection and could pass through walls (network switches in this case). These revenant-like packets can become real orders at any time, effectively placing the trading firm at the front of the queue. It is akin to keeping your hand on the buzzer in a game show, so that you always can answer the question first – but without any obligation to do so.

Proving Mosaic Finance’s assertion quickly gets quite technical as you might imagine. But the approach in question leverages a somewhat unique order type, developed for traders deploying HFT strategies, called speculative triggering (SP). This allows the firms deploying ultra-low latency strategies to start to speculatively prepare a response from the very instant a new market data update comes in. If the HFT firm decides not to convert this message to an order the speculative packets are discarded. But these packets, whether diverted or not, must be conformant to the Ethernet protocol according to the exchange rules. Strict limits of 30,000 frames per second or 600,000 frames per minute are also in place in any case. Mosaic Financial claims the undetected packets are corrupted packets, being generated in the millions per second.

According to a blog from Pico, which provides connectivity, data feeds and analytics to the electronic market maker community, many exchanges, including CME and Cboe, have introduced rules in the last few years to curb strategies that purposely corrupt data or submit partial messages to reduce latency. Eurex’s Stefan Schlamp, Head of Quantitative Analytics, has recently responded to the “back in time” issue, posting a clarification on LinkedIn as to why there “can seemingly be negative reaction times” suggesting cable length variations, random noise and rounding among other reasons. Mosaic remains unconvinced.

Meanwhile, the mention of cable length variations may raise further questions considering MiFID II requires, "a regulated market to ensure that its rules on co-location services are transparent, fair and non-discriminatory", including when it comes to cable lengths (for reference, the distance an electrical signal travels in a nanosecond it about 30 cm).

Industry Monitoring

Not being a lawyer, an HFT trader or a journalist I’ll leave this explanation there. But as I do advise my financial institution clients around use of technology, this story caught my eye and those of 14k+ who viewed my LinkedIn post on this. Exchanging views with Mosaic Finance and other market participants only raised my interest further. I contacted Eurex in an effort to understand this better. It responded saying, “Eurex treats all trading participants equally. The allegations are unfounded, and all substantive concerns raised have been repeatedly reviewed by Eurex. None of the issues raised proved to have merit.” My request to speak to someone in their technology team about Speculative Triggering was declined, however.

For those who want to dig in further for themselves, see Eurex’s March 2025 deck titled “Insights into Trading Systems Dynamics – Deutsche Börse’s T7”, Global Trading’s article, “Eurex denies getting swamped by “corrupted” messages as HFT dispute escalates”, and Mosaic Finance’s White Paper on “Corrupted Speculative Triggering”. The latter was posted by Hugues Morin, President of Mosaic Finance, and contains findings of its “one-year long research” on CST and provides its views around how it is performed, how it can be detected and why Eurex is tolerating this practice.

Pushing Technology Boundaries

Whatever the outcome of Mosaic Finance’s regulatory actions, this case is an interesting illustration of how HFT is constantly pushing technology boundaries, of the financial and market integrity stakes involved, and raises questions around the wider market’s ability to keep up.

Of course, not everyone who co-locates in the exchange data center is doing so because they are pursuing an ultra-low latency HFT trading strategy. Deterministic latency and access to direct data feeds are among other reasons.

Celent subscribers considering colocation can read more about trends and decision drivers when considering a DIY versus managed services approach to colocation across varied capital markets uses case can access this report: “Colocation of Financial Markets Trading Infrastructure”.

Or get in touch if you would like to exchange views.