Finance: who's driving the bus?

During the last 15 months, here at OBASHI Think we have written a few blogs about IT in today’s data flow reliant finance industry.  For example,

Data flow disasters can sting

If a data flow is interrupted or compromised, it can cause chaos in the financial markets.

It’s time to shine a light on banks’ data problems

Many financial professionals are concerned about continuing complexity in finance.  Understanding internal & external connectivity is just one key issue that needs to be addressed.

Be afraid – business as usual in Finance IT

A round table debate amongst bank industry IT leaders reveals that there is still much to do in terms of creating clarity about how the industry works

The conclusion of the latter reads

What’s worrying during a period of serious economic downturn is that the innocuous sounding ‘glitch’ in one part of the financial system may trigger a ‘knock-on effect’, and a far more serious problem may occur in another part of the complex global financial matrix.

Until finance creates clarity about data flow, that risk is one that should not be dismissed lightly.

An article I read recently in Securities Technology Monitor reinforced that viewpoint.

The piece is about errors and outages that have occurred in financial exchanges in recent years.

Tom Steinert-Threlkeld interviewed an unnamed ‘global head for technology and operations [HTO] of a major investment bank’, about his experiences of resolving connectivity problems in financial exchanges.

In the discussion, the HTO says of his experiences

“...You have multiple parties involved...You’re dealing with the telecommunications company for the exchange and the data center operator for the exchange. And maybe a project management organization for the exchange...you are going through one, two, three levels of indirection...It becomes complicated because it's not homogeneous, it's a heterogenuous environment, it's global, worldwide..."

Steinert-Threlkeld writes that many mistakes and outages don’t get reported.

The HTO said,

"It happens all the time...We've had four or five outages in the last six months...It's inexcusable."

Globally, trillions of $US are traded every day across various markets.  In the global foreign exchange markets alone, average daily turnover in is estimated at approximately $4 trillion. 

The article states that, in one minute, 300 million messages can be exchanged across live market data feeds.

Obviously, maintaining uptime is key.  Money is at stake ‘on every exchange of electrons and every data packet that changes pipe.’

When something goes wrong with the data flowing through the ‘pipes’ of the financial exchanges, it can be very expensive.

For example, stock exchange Direct Edge fell foul of regulators when it changed computer code without testing it, with the result that $773 million of unwanted trades were made.  Customers were reimbursed for losses amounting to over $2,000,000.

But that is a trifle when we consider, given the prevailing economic situation, what could happen if a major financial institution went bust because of poor risk management. 

After all, it’s only a few weeks since UBS lost $2 billion, allegedly because its monitoring systems failed to raise the alarm about its precarious trading position.

According to Wall Street & Technology, trading company MF Global, which recently collapsed,

is the fourth Federal Reserve primary trader to fail in the past four years, and is just the latest in a long list of firms that have collapsed without any trace of their customers' money.

To repeat a conclusion of another of our blogs on finance,

what is clear is that in today's data-driven world, complex industries...have to constantly understand precisely how they work.  If not, they will continue to court disaster.

And that understanding can be best achieved by creating clarity on how data flows through and between businesses.