A couple of weeks ago Nasdaq OMX’s NLX was hit by a series of rogue algos and the nascent exchange was forced to cancel some trades which angered some traders.
This week it was ICE’s Liffe’s turn when a technical fault meant its short-term interest rates markets did not open leaving traders unable to execute on that platform for over three hours.
Traders get understandably animated about these situations as they are left either out of pocket or at best out in the cold through no fault of their own. But it is easy to attack the exchanges for these problems.
The fact of the matter is that there is no perfect solution to an exchange outage. They tend to take place under unique circumstances and exchanges (sensibly) do not prescribe a strict approach in the event of a problem, rather they tend to take them on a case by case basis.
This is understandably frustrating for clients, who want certainty about their positions so they can adjust their trading accordingly.
Yet uncertainty is unavoidable at least while the exchange is working out what just happened and consulting with clients over what should happen next.
The exchanges could definitely be more effective about communicating with their customers in these situations.
One client told FOW he was on the phone to Liffe’s customer services for most of Tuesday morning, an experience only slightly relieved when the holding music changed after an hour.
The simple fact is that these kinds of glitches shouldn’t happen but they do and the exchanges have the unenviable position of sitting at the heart of the market so when an exchange goes down everyone knows about it.
We don’t tend to hear about it when a bank or prop firm’s systems go down because no-one outside of that firm would know, but exchanges do not have that advantage.
The Liffe glitch came just months before ICE is going to start moving the London-based exchange to its technology platform and off its legacy system, and the outage could have fuelled calls for that to happen sooner rather than later.
The glitches will also have caught the attention of rivals in the shape of CME Group which is looking to establish its CME Europe exchange and the LSE Group which is working on a plan to deliver a new futures trading unit perhaps as early as this year.
The technology aspects of a new exchange should not be underestimated however. There are strong exchange system suppliers around in the shape of Cinnober and the LSE’s Millennium for example and they could get you up and running in a few months.
But the greater challenge is linking up all the customers and getting them tested and trading on the new system and that is what takes the time, something the LSE will likely be finding out in the coming weeks if it hasn’t learned this already.
It is easy to attack the exchanges and they deserve it on many occasions but everyone knows that technology is innately unreliable and they should bare that in mind the next time and exchange goes down, which will be next week or the week after.