Recent high-profile market disruptions illustrate the need for design reviews and quality assurance reviews of mission-critical trading systems. In today’s competitive markets, the urgency to “get it out” has superseded the rationale to “get it right.”
Lack of proper attention to detail/oversight, making production changes on the fly, etc. can lead to operational risk or reputational risk. Both can be costly as we have seen in the last few months and can lead to significant realized losses.
As markets have become more fragmented, inter-linked and reliant on high velocity data, the complexities of systems design and interrelationship of these “moving parts” may not be fully understood by technologists or business staff.
This becomes exacerbated when something goes wrong, and the law of unintended consequences comes into play. These hit the media as “software run amok,” “rogue software” or “tech glitches.”
In the last five to seven years, algorithmic trading has permeated global markets – equities, options, futures, and, as electronic market making has taken off, so has the phenomenon of proximity hosting (aka co-location).
Competition, market structure changes, smart order routing and shrinking margins have driven the need for speed and smart technologists discovered ways to gain an edge via low-latency hardware, software and network technologies. This arms race has escalated the speed at which trades are executed at and the overall market velocity.