EU watchdog raises concerns on third-party reliance after exchange outages in 2020

The European regulator cited blackouts at Euronext, the Tokyo Stock Exchange and the Australian Securities Exchange in its report. 

The markets regulator in Europe has raised concerns over trading venues’ reliance on third-party data and software providers following several major technical outages that took place globally in 2020.

In its first trends, risks, and vulnerabilities (TRV) report of the year, the European Securities and Markets Authority (ESMA) cited major blackouts at Euronext, the Tokyo Stock Exchange (TSE), and the Australian Securities Exchange (ASX), and warned against reliance on third-party data and software providers. 

“The technological issues that affected venues in 2020 highlighted potential concerns over the concentration of software providers and other technical infrastructures under the same platforms,” said ESMA in its report.

“Even though these episodes were not caused by cyberattacks, the increasing reliance on third-party data or software providers, and cloud services, may pose threats to the orderly functioning of a network of venues in instances of technological failure.”

Deutsche Börse experienced two separate outages during 2020 due to software glitches, the first lasting for four hours on its Frankfurt Stock Exchange in April, and the second lasting for three hours on 1 July on its trading platform Xetra.

Marketplaces of the European exchange operator, Euronext, suffered a three-hour interruption to trading on 19 October that prevented the closing auction from successfully taking place.

Outside of the EU, a software issue that coincided with the launch date for the upgraded ASX Trade system, provided by US exchange group Nasdaq, forced the ASX to shut down for four hours on 16 November. 

Elsewhere, the Tokyo Stock Exchange (TSE) also experienced a major hardware malfunction in October that forced it to shut down for an entire day.

The technical failure at TSE, which fell upon a day when many funds were rebalancing their portfolios and the first day of the new quarter for the second half of Japan’s fiscal year, led to the resignation of the exchange’s chief executive officer, Miyahara Koichiro, in December.

ASX, Deutsche Börse and Euronext all cited issues relating to third-party providers in follow-investigations and consultations on the outages. 

In a recent deep dive into the 2020 blackouts by The TRADE, Guy Warren, CEO of technology provider and financial operations specialist, ITRS, said that blaming either third-party software or hardware was a weak response to outages as exchanges should not have a single point of failure.