BT Radianz is set to focus on the derivatives market more
this year than ever before.
Over the past six months, the connectivity provider has
entered into partnerships with the likes of ASX, CME and the
Moscow Exchange, increasing its presence in the rapidly
evolving market where technology investments have become more
important than ever.
Squeezed volumes, regulatory demands and the increasing
focus on risk and compliance have ensured that participants are
equipping themselves with the most up-to-date technology.
But a series of glitches during the first quarter of 2013 is
raising questions surrounding the risks of technology failures
in the derivatives market.
BT Radianz’s, head of industry initiatives,
global banking and financial markets, Chris
Pickles, talks to FOWi’s
Jonathan Watkins about the far-reaching impact of
technology glitches, spotting the cracks before the breaks and
how the industry can avoid these costly outages.
FOWi: The CBOE glitch last week followed a string of similar
occurrences across exchanges around the world, is it fair to
say that the risks are increasing as technology becomes more
CP: Clearly as technology is being used
more and more at the stressed end of the market - HFT,
high-speed trading, low latency for example - then the
dependency of technology makes it even tougher when things go
The days when you could have a system which could stop for a
minute, and then people could pick and up carry on are
The idea today that everyone gets it at the same time within
a microsecond makes it far more stressed in that way because
when things stop it’s the impact it has on the
You have got the different levels of impact. When it is one
individual firm that goes down it has an impact on its internal
operation and also on everyone else that it is dealing with at
But when you get a get a core infrastructure in a financial
market stopping then the feedback ripples right through the
I think some of these problems results from the fact that
things aren’t moving so fast in terms of
technology, the economic pressure on
firms to cut down on costs and on staff.
|"When you get a get a core infrastructure in
a financial market stopping then the feedback ripples
right through the world"
The result of regulatory pressure as well, because of
capital adequacy requirements where more money is being taken
out of the company so they can’t invest in
When you take those things together it starts to show the
FOWi: With the amount of regulatory compliance
required is it more important than ever for companies to invest
in the best technology?
Regulations are addressing issues of business continuity
along with many other things, but the topics all come under the
heading of operation risk.
In the old days nobody particularly paid attention to
technology as it was all too technical, now it has been built
into regulations - Basel II has had it in for over ten years,
Mifid has had it since 2007.
So you start to look at it and think if regulators have to
write regulations to do it then yes, it is important.
"When you look at economic crashes and banking
failures, it is the wakeup call that there is much more
here that needs to be paid attention to"
Typically what happens is the regulation comes in, that says
you have to have systems that continue to work even when the
outside world has a problem. In other worlds 'my computer broke
down is not a sufficient excuse.
Everybody at this point will say to themselves that
everything is ok, but when you get the extra pressure, higher
volumes in the market, fewer people, less money, less time to
test, then that is where the problems show.
Hopefully they will see this before they get the break and
see that requirements are not being met and they will pay more
attention to the reliability and security of the systems, while
also having an alternate plan just in case.
FOWi: How can you see these cracks before the break - is it a
case of more testing before going live or better safeguarding
once it is being used?
Things are getting more complex so it is harder to test
things because you are dealing with much more complex scenarios
There is a tendency in financial services to think 'surely
everything will be ok’.
If you talk to people who work in the post-trade sector,
then they will say that the failure rate of transactions is 2%
About 2% of trades don’t actually go through
fully automatically and they require manual intervention to
sort out problems.
There’s a different rate of quality in other
industries than currently we are seeing in financial
"Exchanges today see that technology is one of
When you look at economic crashes and banking failures it is
the wakeup call that there is much more here that needs to be
paid attention to.
Rather than thinking 'all will be well’ it is
probably better to say 'surely we need to do even more
FOWi: So are investments in technology a way to get ahead of
the competition in this current environment?
Exchanges today see that technology is one of their
differentiators, even more so when they are actively competing
with each other.
Technology is great stuff but you can end up with it running
away with you.
Trading platforms which are competing with each other find
But it’s not just about the speed, having speed
is important but just having that and not the reliability and
the safeguards that are needed becomes meaningless.
You start to look at the outside world and this is why
people are outsourcing, because of the expertise, the cost and
FOWi: Major exchanges surely have sufficient backup systems in
place, so why do problems continue to occur?
Exchanges have got backup plans, systems and date centres
available to them, but it is when it comes to using it that
|"Hiccups and glitches are not once in a blue
moon now, they are periodic each year"
It is literally having somewhere where you can try things
out and test them far away from your facility, make sure
everything works and then go live, but that requires
Hiccups and glitches are not once in a blue moon now, they
are periodic each year, not just in exchanges but banks as
When we are looking at the world of financial markets it is
a world of communication, the foundation on which everything is
built. It is how the members access the exchange, how the
members reach the regulator, how the regulator looks at
what’s happening in the market and how you get
your market data.
Not only does your company work 24/7, your systems have to
work 24/7 as well.
It is where expertise stands out.
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