A new study by tech consultancy NET2S has found that the vast majority of trading latency is generated by a bank's own applications and firewalls rather than networks.
Applications and firewalls are responsible for 85% of total system latency, according to the NET2S study, which is based on real-world tests conducted in the trading environments of top-tier investment banks in London.
Applications were found to responsible for a massive 85% of total system latency, while firewalls are responsible for 20% of latency.
The study found that on average the network now contributes to just 13% of a system's overall latency, making it the second smallest contributor below messaging which comes in at just two per cent.
NET2S says most financial institutions have tuned their networks or taken advantage of proximity hosting services, which has helped reduce network latency.
Frédéric Ponzo, Managing Director of NET2S and co-author of the report, says the fight against latency in both the middleware and network layers is "pretty much a won battle".
In the last few years in London alone, the average tier-one investment bank spent close to £10 million on direct connectivity, hardware upgrades, increased bandwidth and proximity hosting, says Ponzo.
"The industry must now do battle with their applications if they are to finally win the latency war, and we predict that significant investment will be made in this space over the next few years," he adds.