The New York Stock Exchange opened trading two weeks ago to chaos, as more than 250 companies’ share prices seesawed frenetically in what was later determined to be an event caused by a human error.
Systems that require a single person to manually shut them down or switch them over are “accidents waiting to happen,” said Monica Summerville, head of capital markets at the research firm Celent. People make mistakes, but systems that affect millions of dollars, thousands of trades and confidence in markets amid an increasingly competitive trading environment should have automation and cloud technologies to ensure operational resiliency, Summerville and other experts said.
NYSE canceled more than 4,000 trades related to the incident on Jan. 24 and more than 250 companies were affected, including financial institutions like Wells Fargo, Morgan Stanley, Visa and Toronto-Dominion Bank. Bloomberg reported that the event was caused by, ironically, an employee failing to properly shut down the exchange’s disaster-recovery system at a backup data center in Chicago.
“Mistakes do happen, but that’s why you have a lot of operational controls in place,” Summerville said. “I don’t think that what happened is necessarily unique to NYSE… We’ve got increasing complexity in systems as exchanges are competing against lots of different types of venues, lots of different ways to trade and the market is becoming more competitive.”
Summerville added that automating processes can help monitor potential problems for exchanges. Orchestration technology can follow processes and workflows, and provide alerts when a part of the exchange isn’t operating as it should, for instance, a disaster-recovery system not shutting down properly.
Vinod Jain, a strategic advisor on the capital markets team at the research firm Aite-Novarica, also said a system control with an alert feature should be a priority.
The specific costs of the NYSE event are still unclear, but Jeff O’Connor, head of market structure for the Americas at the broker-dealer fintech Liquidnet, said he wants the exchange to take financial responsibility for its mistake, which caused traders and their clients to miss the opening auction that they expected. NYSE, which is owned by Intercontinental Exchange, declined to comment to American Banker beyond public statements on its website.
“There’s a significant loss of confidence that happens on the Street when something like this happens,” O’Connor said.
The competitive environment for exchanges could also be increasing pressure on companies like NYSE to update technologies, Summerville said. Matt Barrett, co-founder and CEO of Adaptive, which builds front-office trading technologies, said that if there’s a human in a system, that human will eventually make an error, but updating systems is also tricky.
“Change is also risky,” Barrett said. “Up until they had an issue, they didn’t have an issue. And so it will be very hard to argue that they should make a change that would cost quite a bit of money and induce quite a bit of risk because they haven’t had an issue yet … inertia is probably the best way to describe it.”
Summerville said many major exchanges are saddled with legacy technology, although she doesn’t have specific information about NYSE’s technology stack. She said changing those systems introduces risks. Jain added that change is especially risky for financial institutions, and many managers or directors don’t want to assume that culpability.
Market infrastructure providers are also beginning to move toward cloud technologies, per a 2021 Celent report. In 2021, more than 75% of chief information officers and senior technology leaders of global market infrastructure surveyed by Celent said they were in the early or exploratory stages of cloud migration. The same report showed that more than 80% of chief information officers said they expect to fully or almost fully migrate to the cloud by 2025.
Summerville said cloud providers offer resiliency, due to operating multiple data centers with strong monitoring and automation capabilities. The challenge is latency, or speed, because exchanges need immediacy without fail, which isn’t always compatible with what cloud providers can provide.
Whether an exchange adopts cloud, hybrid cloud or no cloud technology, there should still be a failsafe system in case the cloud doesn’t function properly, Jain said.