Regaining Control of Trading Systems Amid Volatility04.17.2020
Mastering uncertainty in a pandemic: how to regain control of your trading systems when volatility strikes
By Guy Warren, CEO, ITRS Group
Things are moving increasingly fast in this new reality we find ourselves in. New lockdowns and travel bans are announced on the daily, phone updates are pinging every minute and live news streams are monitored zealously.
Far from being the exception, the global financial markets are leading the pack in terms of minute-by-minute reactions to breaking news. In addition to the rapid closing of borders – halting businesses and causing stock brokers to take pause – individual announcements like the recent lockdown of one of the world’s leading financial centres, London, can trigger even more violent spikes in volatility.
As panic sets in, we will only see more investors race to pull their money from risky shares into safe ones; that is, those that are not impacted by the present pandemic and pay a good dividend. At the same time, in the world of currencies, we’re already witnessing a move away from Sterling towards the US dollar. Bonds have been similarly swept into the fray as a result of central banks dropping interest rates by half a percent.
In short, the three main asset classes in the world – shares, bonds and cash – are being massively impacted by the decisions governments and individuals are taking every second. The fallout is that enormous amounts of money in trades outside of asset classes are being moved incredibly rapidly, creating an unfathomable amount of simultaneous transactions. Where a typical ‘busy’ trading day might see twice the normal trading volumes in the market, we’re currently witnessing an averaged five-fold increase.
Firms who are expecting this unprecedented situation to ‘blow over’ anytime soon will be unpleasantly surprised. Rather than being a blip on the global markets, such heavy global trading is expected to continue raging and potentially even worsen right through to summer, or whensoever we see a significant fall in new cases of Coronavirus.
As a result, fund managers will be forced for the foreseeable future to put on a smile and continue to trade ‘business as usual’. That doesn’t mean to the best of their abilities in light of the present challenges, that means continuing to meet customer demands without missing a beat. If they have a volatility-induced outage while a client is trying to move asset classes, that client will be out of pocket and leave. Those fund managers who aren’t prioritising the resilience of their trading infrastructure now will find themselves on the long list of collateral fallout from COVID-19.
To begin future-proofing themselves, firms must first understand their present headroom. All systems have a limit of how many trades they can do per minute, yet many firms do not know what this limit is, let alone how to address potential points of failure. Now is the time to end the trial-and-error approach to capacity and get a handle on the exact volume their systems can house today. Capacity planning tools are essential, helping firms to not just calculate their headroom, but identify where potential pinch points exist within their IT systems. This means they can better understand where and when a failure may occur and put solutions in place to avoid disruption down the line.
The right software tools can also assist in modelling and stress testing a variety of ‘worst case’ scenarios. By mimicking scenarios that haven’t happened yet, firms can better predict what their systems can and cannot withstand and take the remedial measures necessary.
For example, if a firm has just had a 4x day, they can model what a 6x or an 8x day might look like on their systems. From there, predictive software can tell them where the pinch points will be and model any consequent changes they would like to make to their estate to give them more headroom.
Today, individuals and businesses alike can only know one thing for sure: that nothing is certain. Many are asking themselves what new announcements the next few days and weeks could bring. Who will be the next to announce a lockdown? What industry will be the next to take the blow? While the answer to these questions may elude us, there is one thing firms can do to regain control of the present situation. By harnessing the power of data and the right software, they can gain crucial insight into their IT estates now and avoid outages come the next announcement.
Covid-19 has underscored financial firms' need to reduce manual processing and create flexible infrastructure.
Firms need to ensure access to public cloud services when needed most, IPC's Jordan Feigenbaum writes.
Specific concerns pertain to equity valuations and unintended risks of fiscal stimulus, DTCC survey shows.
There's more focus on deploying an efficient technology stack across the investment management operation.
Retail inflows into responsible funds were four times higher in the first half of 2020 than a year ago.