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Christopher Steiner, 12.20.10, 12:00 AM ET

Buy-and-hold is nearly a quaint notion on Wall Street. For those who run millions of dollars the latest fashion is called high-frequency trading: get in, snag a tiny profit, get out, repeat. Millions of times a day. Today high-freq shops are responsible for some 50% of equity trades (down from 60% in 2009, as market volatility has ebbed) and a growing percentage of derivatives, such as futures and options.

Speed wins in this game–which now generates nearly $6 billion in U.S. trading profits–and speed is all about having the fastest hardware and software money can buy. Intel, IBM and Cisco have piled into this arena during the last decade, bombarding traders with data on how their equipment can shave vital fractions of a second off of each trade. Global outlays on trading-related hardware hit $13.4 billion last year, estimates TABB Group. But which of the heavyweights can truly lay claim to the speed crown?

Enter Peter Lankford, founder of STAC (Securities Technology Analysis Center), in Warrenville, Ill. Bespectacled, trim and dapper at age 44, Lankford wants nothing less than to establish a universally accepted standard of measurement for high-speed-trading equipment–just as the Underwriters Laboratories “UL” logo signifies that a piece of electrical equipment won’t suddenly erupt in flames. “We want everybody to use us as a guide,” he says.

Setting an industry standard from scratch is a tall order, never mind in such a secretive and insular industry, but in the last five years Lankford has gotten Wall Street’s attention. High stakes help: Lagging a rival by just one or two milliseconds–when, say, arbitraging the price of an exchange-traded index fund against its underlying stocks (a popular high-frequency trading strategy)–can cost millions of dollars in forgone profit.

Lankford also had made strides by convincing his customers–many of them fierce competitors with one another while the markets are open–to work together to decide what STAC’s metrics should be. Lankford’s clients, which he collectively calls the STAC Council, now include more than 100 trading firms and 50 hardware and software vendors. Money managers pay a one-time fee of $5,000 to be members on the council and access STAC’s vault of performance data; equipment vendors pay $10,000 annually. (Lankford won’t reveal STAC’s revenue.)

Past attempts to create industry benchmarks always came from vendors, who would be tempted to tweak the results to ensure bragging rights. “We put customers in charge because we wanted benchmarks valuable enough so people will pay for them,” says Lankford.

Generating apples-to-apples comparisons among so many components and systems is tedious work. Two important metrics are latency (trader lingo for speed) and throughput (the amount of data a system can carry per second). A “lag in latency” can trace to any number of sources, from the servers and processors at an exchange to the routers and switches within a trader’s own data center. STAC tests myriad variations, changing one variable at a time to determine which components deliver the lowest latency within a client’s overall system. The problem with low latency is that it often comes with lower throughput; the trick is to strike the best possible balance. “We’re measuring the zero-to-60 speed but also the gas mileage,” says Lankford.

Space and energy efficiency matter, too. Smaller equipment is better: An extra couple of square feet in an exchange’s data center can cost thousands of dollars per month. Data centers and exchanges charge much more for electricity than do local utilities, so STAC also measures the number of messages per second per watt. Lankford even tests the way systems react after sudden shutdowns and reboots, so clients know what to expect–and what data might get lost.

The testing takes place at a lab near Wall Street in Manhattan. Finding the right spot took months. STAC needed roof access, an unusual request in Manhattan, to mount a GPS satellite antenna in order to synchronize its clocks down to the microsecond (one-millionth of a second). The space–protected with fingerprint biometrics and jammed with cables, server stacks and air-conditioning equipment–also serves as a nice showpiece for prospective clients. To buff STAC’s impartial image, Lankford and crew roam industry events in white lab coats.

Lankford grew up in farmland Nebraska, where his father was a biochemist and his mother taught music. Lankford taught himself to write computer code in high school, a skill he’d apply to make extra cash at the University of Chicago. After graduation Citibank offered him a job creating software for measuring the productivity of international money transfers. Lankford would return to U. of C. for an M.B.A. before joining First Chicago (now part of JPMorgan Chase), where he helped the bank move from an old mainframe computer system to modern servers.

In 1996 Lankford bounced to Reuters–one of the largest suppliers of software for monitoring real-time financial data such as stock tickers and commodity prices–where he rose to the head of the company’s information management division. There he witnessed several watershed moments in trading, including the decimalization of the exchanges, the splintering of the Nasdaq-NYSE duopoly and the rising role played by high-frequency traders across global markets. “There was constant disruption from new technologies,” recalls Lankford. “There was a lot of opportunity for people who knew the business.”

In 2005 Lankford ditched a comfortable salary, hired away an engineer from Reuters and went hunting for consulting gigs optimizing speed performance for trading firms and hardware vendors. It was slow going. Then Lankford heard through the grapevine that Hewlett-Packard had landed a big contract to supply a New York investment bank with servers and other trading hardware. The bank had spent months internally testing the speed of HP’s equipment, finding it to be, for its purposes, the fastest available. HP wanted the bank to crow about its results, but the bank balked at going public with the data.

Hungry for business, Lankford offered to serve as HP’s independent testing authority. Once trading outfits discovered they could avoid the tedium of testing individual components, thereby freeing their $200,000 techies to monitor and triage their overall systems, work started flowing in.

Lankford further ingratiated himself with clients by forming the STAC Council, where banks and traders would all get a say in how performance would be measured. Bringing all the parties to the table, and keeping them there, took a year and plenty of shuttle diplomacy; the Council now meets six times per year, in New York, London and Chicago. Unlike traders, vendors don’t get to vote on benchmarks, but being in the Council gives them a better glimpse of what their customers want. “You roll up your sleeves and get down to the details very quickly,” says Robert Heuman, a director at Deutsche Bank.

Lankford’s big challenge now: retaining talent. One of the largest high-frequency trading firms recently plucked one of his best engineers. The interview consisted of one question: “So you work at STAC? Okay, that’s all I need to know.”