European CIOs Come Under Fire When Their Systems Fail

When a stock trading system goes down, CIOs get involved
When a stock trading system goes down, CIOs get involved
Image Credit: Stock Catalog

The one thing that stock traders want to be able to do is to trade their stocks. However, if the IT systems that they use to make this happen have a fault or an outage, then all of a sudden something that is normally always there can vanish instantly. When this happens, down lost time means money lost for stock traders. The person that they are going to be holding responsible for their losses will be the CIO who is in charge of the systems that they use. This was recently a big problem. What are CIOs to do to prevent events like this?

The Day Stocks Couldn’t Be Traded

Investors in Europe learned the hard way that the key structural differences between some of the region’s main stock exchanges and their U.S. counterparts put them at a costly disadvantage when it comes to trading stocks. Technical glitches halted trading on two separate occasions highlighting the importance of information technology and risking potential losses for investors that trade stocks on five of the six European marketplaces owned by Euronext, including those in Paris, Amsterdam and Lisbon. The breakdown bolstered arguments by the people in the CIO position that Europe should follow U.S. practices and introduce a consolidated tape. This is an electronic system that collates real-time prices for stocks that trade on different marketplaces simultaneously.

Trading activity in stocks normally spikes at the end of the day. When the closing auction failed it didn’t. Such a system would have allowed investors to continue trading stocks on alternative venues – including Cboe Global Markets’s Europe-based marketplace, the London Stock Exchange’s majority owned Turquoise trading facility, and Aquis Exchange – despite the Euronext glitches. This is because the consolidated-tape prices would serve as a reference for investors to trade stocks on different marketplaces. Instead, what happened is that when Euronext’s exchanges went down investors struggled to trade even the biggest corporate names such as Paris-listed luxury-goods giant LVMH Moët Hennessy Louis Vuitton or Amsterdam-listed Just Eat, a big food-delivery company, because pricing was unavailable or difficult to access.

A breakdown in Euronext’s platform risks disrupting trading across an increasing number of Europe’s exchanges given the pan-European operator is in the process of acquiring the Italian exchange from the LSE for about $5.1 billion. That deal would expand the number of trading venues it owns to seven. The consolidated tape would save investors billions of euros, provide better investment outcomes for investors and promote greater competition and resilience among trading venues.

Change Is Required To Prevent Future Problems

The person with the Euronext CIO job defends its technology. He says that that its Optiq trading platform has demonstrated reliability since its implementation in 2018. The trading disruption is one of two technical breakdowns involving a key part of Europe’s financial plumbing. A previous software glitch disrupted the European bloc’s main wholesale payment system, which prevented banks from processing transactions and securities trades for almost 11 hours. The European Central Bank CIO said Wednesday they have taken steps to avoid a repeat of the disruption.

If investors and their brokers in Europe wanted to avoid future outages, they would be required to subscribe to stock quotes from multiple trading venues to replicate a consolidated tape. The problem with this solution is that this solution is costly, inexact, and raises the risk of missing out on the full view of available stock prices. That structure showed its flaws when Euronext halted trading for a few hours on most of its venues because of a software glitch. Many investors struggled to access alternative venues during this time to complete their transactions.

A consolidated tape helps to overcome the challenges by offering investors one source for real-time quotes that would allow them to switch between marketplaces to trade a stock if one venue went down. In the U.S., a consolidated tape protected investors when trading on the New York Stock Exchange froze for almost four hours. All of the other exchanges were able to keep trading and no one really noticed. Euronext’s technical challenges also highlight the relative risks of trading in Europe as an increasing number of orders are executed during a narrow window at the end of the trading day. A heavier reliance on closing auctions on at least some exchanges in Europe suggests the fallout from any trading disruption would be more severe by canceling a greater number of trades.

What All Of This Means For You

The CIOs who run the firms that provide the data that people who trade stocks are always under a great deal of pressure. The systems that these CIOs are in charge of are used every day, all day long, by people to make money. If one of their systems experiences an outage, then all of a sudden nobody is making any money. Preventing outages is one of the key jobs of these types of CIOs.

The one thing that the European stock exchange CIOs don’t want to have happen is an outage. Yet, that is what they recently experienced. Problems with the software that allows stocks to be traded has experienced issues twice in recent history. The volume of trading that is being done generally goes up at the end of the day. However, during the outages this did not happen because investors did not have the information that they needed in order to make trades. As the European stock trading systems become more and more intertwined, the impact of an outage grows larger and larger. Investors think that they know what the solution to their problem is: a consolidated tape. This does not currently exist, but European CIOs need to think about creating one.

“Mission critical” is a phrase that many CIOs like to use when referring to their most valuable system. The European stock exchange CIOs know that just about all of their systems can be considered to be mission critical. Although there is probably no way to prevent any of them from ever going down, it sure seems like having a backup plan like a consolidated tape might be a good idea. We’ll have to see what these CIO’s next steps are…

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

Question For You: If the European stock exchange CIOs don’t decide to create a consolidated tape, what should they do instead?

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What We’ll Be Talking About Next Time

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