Safeguarding Exchange Technology

Terry Flanagan

Multiple recent instances of exchange technology glitches have market operators, regulators, and software providers on the hunt for solutions.

Specific remedies proffered vary widely, but there is a broad consensus that the best way to minimize the risk of exchange disruptions is to make technology more proactive and less reactive.

“We need to make paradigm shifts away from traditional monitoring, where when something turns red it’s already too late, to being truly more predictive,” said Jo Kinsella, chief executive of financial services for Verdande Technology.

Earlier this year, Chicago Board Options Exchange and NYSE Euronext reported outages, following previous disruptions at Nasdaq OMX, Bats Global Markets, Singapore Exchange, and Tokyo Stock Exchange. Market operators and market participants note that exchanges can be viewed as technology companies, and none are immune from an occasional problem.

Exchange technology disruptions can be more frequent and have more significant implications in current markets, given the breakneck speed of trading and massive repositories of data. The exchange space “is used to monitoring so many different things that it almost becomes impossible to keep up,” Kinsella told Markets Media.

Regulators are taking a closer look. The U.S. Securities and Exchange Commission has considered new rules that would allow regulators to step in more readily when problems occur; earlier this year, the securities regulator proposed Regulation Systems Compliance and Integrity, requiring certain key market participants to have comprehensive policies and procedures in place surrounding their technological systems.

Trondheim, Norway-based Verdande Technology provides a predictive analytical system for energy and healthcare firms, and the company is developing a financial-services product that it expects to launch in early 2014.

“Our clients don’t want to be on the front page of the Wall Street Journal,” Kinsella said. “People want to do whatever it takes to make sure that they keep revenue-impacting and reputation-impacting events at bay.”

“We’re dealing with one of the most technologically advanced industries in the world,” she continued. “They have all of this data, but very few places we come across get true value out of it. What we’re trying to do is leverage that data that exists in the client environment and deliver actionable intelligence to the people that are running these very complex trading systems and risk models.”

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