Sell-Side Tech Glitches Provide Lessons for the Buy Side
![anthony-malakian-waters anthony-malakian-waters](/sites/default/files/styles/landscape_750_463/public/import/IMG/216/142216/anthony-malakian-waters.jpg.webp?h=373a525f&itok=zNeqXFEa)
“Three makes a trend”—the journalist’s credo—informs many of the topics we cover in Waters magazine. So when three major incidents involving technology glitches in the capital markets make headlines over the course of just seven days, it’s hard not to look for commonalities among them.
Linking together the incidents at Knight Capital, the Tokyo Stock Exchange (TSE) and the Bolsas y Mercados Españoles (BME) in a meaningful way points to a discussion about disaster recovery and the fragility or robustness of the technology that underpins the trillions of dollars that pulse through the markets each day, rather than any similarities among the incidents themselves.
Even though, for example, the Knight incident and a slightly less noteworthy fourth incident—the Egyptian Exchange (EGX) was shut down for two hours yesterday after power outages wreaked havoc across the country—each resulted in trading interruptions, power outages and rogue algorithms are of course very different.
Whether preventable, as in the case of a bad piece of software, or not, as with extreme weather events, the best defense against trading interruptions are robust risk management systems and disaster recovery plans. What we’ve seen over the last week is several of these events in a cluster, which causes everybody to freak out.
Yet there are still more ways to draw parallels between these failings. Keith Ducker, chief investment officer at Tora Trading, which provides a multi-broker electronic trading platform for Asia, says we may see more tech glitches ripple through the industry because financial IT across the globe is in a weakened state after massive budget cuts and layoffs in 2008, 2009, and even 2010. Everyone is playing a game of catch-up.
"In our opinion, post-2008 financial crisis, firms had under-spent on technology budgets as volumes or revenues had declined," Ducker says. "Some of them now may understand that the cut might have been a mistake."
What happened at Knight, TSE, BME and EGX—and along with the botched Bats and Facebook IPOs earlier this year—are mainly sell-side issues, but they have created much anxiety on the buy side. And to Ducker's point, as the buy side experiments more and more with algorithmic trading and new assets to trade in, the need for improved testing capabilities and infrastructure investment is as important as ever.
Even if it's not entirely accurate to call these events a trend, they also didn’t happen in a vacuum. For hedge funds and asset managers to simply say that exchanges and brokers need to improve their offerings would be short sighted and—as was learned at Knight—extremely dangerous.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
JP Morgan touts DLT, tokens for collateral management
Distributed-ledger technology could make moving non-cash collateral more efficient, said managing director Toks Oyebode during an Isda conference on Thursday.
Waters Wrap: The changing definition and perception of blockchain
Anthony says that questions of definition and perception are killing DLT projects in the capital markets—oh, and a lack of proven implementations.
BlackRock to integrate Aladdin and Preqin to create new private markets platform
CEO Larry Fink calls combining the two platforms “maybe the biggest opportunity in 10 years.”
Ace high or busted flush? Digital Asset’s mixed fortunes mirror DLT adversity
The vendor hoped to remodel post-trade using blockchain technology—and it still might—but its bumpy progress raises questions over the future of DLT in finance.
This Week: BlackRock/Preqin, Trading Technologies, FIA Tech and more
A summary of some of the past week’s financial technology news.
Adaptive’s Aeron goes live on Microsoft Azure Marketplace
The messaging software used for building bespoke trading platforms is now available on Microsoft’s marketplace, making it accessible through major cloud providers.
Bloomberg, industry bodies push back on Cboe’s proposed OEMS rule change
Some industry bodies disagree with the options exchange’s proposal to carve its Silexx OEMS out of the SEC’s definition of an exchange facility and place it into a separate business line.
Waters Wrap: CME, Google and the pursuit of ultra-low-latency trading
CME Group and Google have announced Aurora, Illinois, as the location for the exchange’s new co-location facility. Anthony explains why this is more than just the next phase of the two companies’ originally announced project.