Exchanges must improve software or risk more Nasdaq-style outages

Following a week which has seen severe disruption to trading, experts claim that banks and exchanges are likely to continue to face IT related outages unless stronger measures are taken to improve the software underpinning trading systems.

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Following a week which has seen severe disruption to trading, experts claim that banks and exchanges are likely to continue to face IT related outages unless stronger measures are taken to improve the software underpinning trading systems.

As computer based trading has become the norm across exchanges, there have been a number of high profile software related outages. Last year exchange BATS Global cancelled its stock market listing due to IPO software issues, while the reactivation of old code caused Knights Capital systems to make large volumes of erroneous orders on the NYSE securities exchange, costing the trading firm hundreds of millions of dollars.  Facebook's high profile IPO also descended into chaos with Nasdaq blaming the “poor design” of software as computer systems used in establishing the opening price were overwhelmed by order cancellations and updates.

In the past week more outages have occurred. Internal software systems believed to be at fault for problems at Goldman Sachs, then, on Thursday, an even more significant IT outage created an ‘unprecedented’ three hour shutdown of trading on Nasdaq’s options market, an event which has since been labelled the Flash Freeze.  

One of the commonalities between the major outages occurring in the past 18 months is that, more often than not, they can be traced back to software failures.

Although the initial reports from Nasdaq’s team have suggested that 'connectivity issues' led to the halt in trading, according to Lev Lesokhin at software analysis firm CAST, it is likely that these are symptomatic of problems with the underlying systems.

“In the past we have seen outages blamed on networks that really shouldn’t have happened in the first place – where the infrastructure just really wasn’t designed to cope with badly designed software, and the outage could have been avoided by having better designed software in the first place," he told ComputerworldUK.

“Sometimes the smoking gun is in the network, but the root cause is in the software.”

There have been moves to prevent the recurrence of problems witnessed with the exchanges and banking firms. In the US the Securities and Exchange Commission has begun a consultation as part of plans to improve controls on trading systems in the past 12 months, and, in response to the latest Nasdaq problems, SEC Chair Mary Jo White this week pledged to work to 'push forward' proposals to introduce new standards.

However despite movements by authorities to ensure that procedures are in place for when the unexpected does occur, the regularity with which outages occurs has not been reduced. 

According to Chris Skinner, chief exec at financial services professional network Balatro and director of the Financial Services Club, it is almost impossible to completely stop such issues occurring. The problem is that when systems go down, the repercussions can be huge.

“These outages are inevitable as no system is bulletproof," he said. "The banking systems challenge is how to make it just that however: bulletproof."

“Noone is perfect, and the 0.000000001% errors that do occur are normally insignificant enough not to matter but, when they do, they really do.  Just look at Knights Capital.”

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