With a patent, Renaissance can block competing firms from copying its approach for as long as 20 years, which would help the firm maintain its edge. It could also license the system to others to defray the costs required to build and maintain such infrastructure.
In addition, Renaissance has laid the legal groundwork to obtain global patent protection for its system, documents filed with the U.S. Patent office show. But seeking a patent isn’t without risk, especially for a firm that’s long kept its lucrative trading strategies under wraps.
By filing a patent, “you basically move from guarding your proprietary strategy as a trade secret to revealing the precise mechanics of what you are doing,” said Paul Aston, founder of Tixall Global Advisors, which helps institutions with their foreign-exchange transactions. “The worst-case scenario would be to find out that much of your invention already exists.”
‘Prior Art’
Renaissance isn’t the first firm to seek a patent for its anti-HFT technology.
In 2013, the Royal Bank of Canada obtained one for a order-routing system that Brad Katsuyama, the hero of “Flash Boys,” and his team created for the firm. After starting IEX Group Inc., Katsuyama went on to develop the now-famous “magic shoebox,” which uses 38 miles of fiber-optic cable coiled in a small box to slow orders by 350 microseconds. IEX, which uses the system as its centerpiece, will become a full-fledged exchange in August.
According to Renaissance, these existing techniques fall short. In its patent filing, the firm cites unpredictable changes in “latency,” stemming from issues such as network traffic, data routing and outages, that could leave investors exposed to predatory HFT.
Renaissance says its own invention provides “a much simpler and more cost-efficient way to achieve accurate and repeatable synchronized trades compared to the prior art.”