An Outage In An Exchange Causes CIO Problems

by drjim on May 23, 2018

A NYSE outage is staring to raise concerns about the IT infrastructure

A NYSE outage is staring to raise concerns about the IT infrastructure
Image Credit: Christine Puccio

When outsiders think about what a CIO does, they often think that we spend our days sitting around thinking about all of the cool new technology that is coming our way: cloud computing, artificial intelligence, big data, etc. However, what they all too often don’t realize is that the person with the CIO job is the person who is responsible for the importance of information technology and this includes the day-to-day operations of the company’s critical IT systems. People only seem to remember this when something goes wrong. Over at the New York Stock Exchange (NYSE) everyone was recently reminded of this when one of their main trading programs went down.

The ETF Market

In the world of finance, there is a relatively new player in town. This new type of tradable security is called an Exchange Traded Fund (ETF). ETFs have been becoming more and more popular during the past few years. Every day one of the most crucial events of the trading day for ETFs is the closing auction. This is held in the last few minutes just before 4pm EST.

The reason that the closing auction for EFTs is so important is because it is what determines the daily settlement price for each EFT. Since everyone knows this, the end of the day is when large investors and traders tend to pile in with big orders just before the clock reaches 4pm. ETFs have been becoming more and more popular. What this means in terms of trading is that the volume of ETF trading at the end of the day has been rising. In 2011 it represented 3.6% of the market volume and now it has increased to be 5.5% of the average daily volume.

Clearly the last 5 minutes of trading are the most important. Things get just a bit trickier when you realize that all of this trading is happening on a single market. All of the closing trading will occur on the market where the EFT is listed. What this means is that that market has now become a single point of failure for ETF trading and that should be making anyone in the CIO position nervous.

The Problem

Just the other day something happened that is the stuff of CIO nightmares. A software update was being applied to NYSE computers and it went bad. It went so bad that it took out the NYSE Arca platform. It turns out that this is the platform that is used to trade ETFs and to do end-of-day closing auctions. The result of this was that 341 ETFs were not able to complete their closing auctions.

The crash of the Arca platform meant that traders were left unable to complete trades that they had planned on completing at the end of the day. This meant that they had to get creative. One thing that they were able to do was for buyers and sellers to get in touch with each other in order to complete trades.

Since the Arca platform was not available, the NYSE was forced to scramble and use a backup method to determine what their end-of-day price for the affected ETFs was. It was not until the early evening that the NYSE was able to release an official list of the closing prices on all Arca traded securities. The NYSE has been forced to tell traders that if anyone lost money due to the outage that they should submit a claim for compensation to the NYSE.

What All Of This Means For You

CIOs do get to spend some time dreaming about all of the cool new technology that is undoubtedly coming our way. However, we only get to do this if we have taken care to make sure that all of the company’s existing systems are available to everyone who needs to use them. The NYSE has just experienced an outage that has reminded everyone just how important this is.

There is a new type of traded security called an Exchange Traded Fund (ETF). In the past few years this type of security has been becoming more and more popular. The last few minutes of every trading day is very important for ETFs because this is when the closing auction is held that determines the daily settlement price for each ETF. All of this trading happens on the market where the ETF is listed. Over at the NYSE, a botched software upgrade took out their Arca platform and this meant that 341 ETFs were not able to complete their closing auction. Clearly this is a big problem for the NYSE CIO.

This event once again goes to show us that CIOs have to both create and enforce IT polices within their IT department. There was no good reason to update software during the trading day because it can cause problems just like this. The NYSE CIO needs to sit down with the team, determine exactly what happened, and then make some changes to ensure that this will never happen again!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: What responsibility do you think tha the NYSE had to inform their customers that they were having a problem with their trading platform?

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What We’ll Be Talking About Next Time

As the person with the CIO job, the rest of the company generally turns to you in order to get direction on how the company should move forward. They want you to make recommendations on what technologies should be adopted, what software packages should be implemented, and when servers should be upgraded. This is all well and good, but just exactly how are you supposed to be coming up with these answers? It turns out that if you take the time to observe how other firms are using new technologies, then you may be able to find the answers that your firm is looking for.

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