Markets Demand Bug-Free Software

Terry Flanagan

With the increasing reliance on automated trading by market participants, there is also the increased risk of something going wrong, such as an algorithm going haywire, or even something as mundane as a “fat finger” error.

As a result, exchanges are bolstering software quality assurance not only for their own systems, but those of their customers.

Direct Edge, for example, has launched EdgeRisk Ports, a risk mitigation service which offers market participants dedicated “test ports” to evaluate the readiness of their systems that connect to the EDGX and EDGA exchanges.

The optional service permits only designated test symbols to be transmitted to the production environment. This provides a rigorous simulation of exchange conditions while eliminating the risk of a live order executing during testing.

“Members connect to us via ports, and these ports allow them to send orders into the exchange,” said Kevin Carrai, head of connectivity and member services at Direct Edge. “Edge Risk allows members to send orders using test symbols instead of live symbols, which means that they can test within our environment without the fear of accidentally triggering a live trade.”

Kevin Carrai, Direct Edge

Kevin Carrai, Direct Edge

EdgeRisk Ports is a powerful risk mitigation tool for ensuring that trading software and infrastructure upgrades perform as intended, the company said.

The system “enables market participants to evaluate the completeness of their system modifications within the Direct Edge environment,” Carrai said. “There is currently a high focus on reducing the risk of market disruptions caused by software-related issues.”

Software quality has evolved into a parallel lifecycle process alongside the development lifecycle with quality concerns factored in at every stage of the software lifecycle.

Some common challenges associated with software testing stem from deficiencies in the test process and not the activity of testing itself.

“Software development and software testing are interdependent,” said Jonathan Leaver, vice president of automated trading at trading platform provider Embium. “You don’t want software engineering changes to cause something to break.”

“We have built a collection of testing tools by which algorithms can be decomposed into building blocks and tested throughout their lifecycles,” Leaver said. “By breaking software into ‘Lego’ blocks, it’s possible to test them first individually and then as an integrated whole.”

Paying more attention to software quality at every stage of the lifecycle will decrease the cost of software development, as well as the time to market. By considering software quality issues before the QA [quality assurance] phase, organizations can not only reduce the cost of quality, but also shorten the time to market or time to deployment because the defects get caught earlier in the lifecycle.

The SEC’s proposed Regulation SCI (Systems Compliance and Integrity) is designed to ensure that core technology of national securities exchanges, alternative trading systems, clearing agencies, and plan processors meet certain standards and that these entities conduct business continuity testing with their members and participates.

For the past two decades, self-regulatory organizations have followed a voluntary set of principles articulated in the SEC’s Automation Review Policy and participated in what is known as the ARP Inspection Program.

The SEC has noted that the continuing evolution of the securities markets to where they have become almost entirely electronic and highly dependent on sophisticated trading and other technology (including complex regulatory and surveillance has posed challenges for the ARP Inspection Program.

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