High speed electronic stock exchanges around the world face a possible data meltdown, as trading volumes grow exponentially with computers doing most of the selling and buying.
The grim prediction comes as regulators voice concerns about the exponential growth of data, with 61 per cent of share trading reportedly now computerised.
Mark van Rugt, head of sales at electronic trading technology firm RealTime Systems, told the Financial Times: “If a position is blowing up so fast without the exchange or clearing firm able to react or reverse positions, the firm itself could be in danger as well.”
It was “absolutely possible to bring an exchange to breaking point”, according to Frederic Ponzo, managing partner at consultancy GreySpark Partners, speaking to the newspaper. A disaster could take place, he said, through algorithmic messages being sent at “such a rate the exchange can’t cope”.
A 'technological arms race', as traders and stock exchanges spend millions of pounds on microsecond messaging, is increasingly being blamed for driving the data explosion.
A three-hour outage last year at the London Stock Exchange was attributed by some industry commentators to a spike in volumes from algorithmic trading, the FT reported. The LSE has now begun moving to a new Linux-based platfor, as well as a new ‘dark pool’ platform, in order to better handle algorithmic trades.
Days ago, NYSE Euronext fined Credit Suisse $150,000 (£93,000) for failing to control its trading algorithms. The fine related to an instance two years ago, when Credit Suisse’s systems sent hundreds of “erroneous messages” to the NYSE platform, slowing down trading in 975 shares. There are other similar cases from different trading firms.
In 2007, an algorithm in use at a Goldman Sachs hedge fund misread the market, wiping $1.5 billion from its value.
As the battle heats for faster trade network messaging, the quest for fast delivery of share information and news is also intensifying. But it remains to be seen how successfully exchanges and traders will deal with the fast influx of new data.
Yesterday, a new service was launched offering instant machine reading and analysis of business news, on which high volume trading machines, including hedge funds, can effect new trades in milliseconds.
The NewsScope service from data firm Thomson Reuters reads and prioritises news articles relevant to traders. The idea, according to the company, is to enable firms to trade shares “before the information moves the market”.