Almost half of market participants believe exchange glitches are simply a part of modern electronic trading that markets should learn to live with, according theTRADEnews.com’s September poll.
With a string of exchange glitches in recent months, including almost four hours of downtime on the US-based Nasdaq exchange in August, theTRADEnews.com asked readers which lessons they felt can be drawn from the recently problems.
A significant 44% of respondents took a relaxed attitude and felt that market glitches were just part of modern trading.
Commenting on the findings, Mark Howarth, principal consultant for market advisory firm Bourse Consult, said: “If we want a market structure which is somewhat like it was in the 1970s and 80s where there was very little innovation and minimal regulatory reform then you might be able to guarantee extremely stable markets.
“But today, exchanges face demanding customers and regulators and are constantly trying to improve their offering and whenever you introduce change there is a chance you will get a technical glitch which upsets trading.”
Almost 30% of respondents felt that the recent problems are due to weaknesses in market structure.
The rise of electronic trading and the extremely rapid speeds that markets operate today is certainly one of the key reasons behind the occurrence of glitches, and systems which are meant to handle thousands of requests per second can easily get overrun in unusual circumstances.
However, Howarth said the regulatory environment today, which is constantly tinkering with market structure, might be itself to blame for the problems faced by exchanges.
“Today, markets are being impacted by a broad array of new regulations and updating systems to cope with these changes can also lead to glitches,” he explains. “When you’re dealing with a complex interconnected system any change in software or hardware can go wrong.”
The least popular response was that exchanges aren’t investing enough in their technology, voted for by a little over 26% of market participants.
While exchanges are under cost pressures due to reduce market volumes, Howarth does not believe a lack of investment is to blame for most current market outages.
“Considering the complexity of the technology involved, the competitive environment is such that exchanges are spending a lot of money on their technology and doing what they can to keep it running,” he said. “When you consider how many trades these systems handle, it’s impressive that they are able to keep running with no problems the majority of the time.”