IT project management matters as the 2010 Wall Street “flash crash” showed
On April 22, a futures contract trader based in London was arrested after the US authorities accused him of contributing to the 2010 Wall Street “flash crash” that caused a loss of $800 bln.
The technique used is known as spoofing and this incident brings about the i mportance of systems and controls employed by the Electronic Trading Systems (ETS) to stop these orders prior to submission for execution, as well as the responsibilities of the financial institutions providing such services.
“This is like something out remarkable story,” the BBC’s Peston said.
“The allegation is that he was sending what are known as spoof orders to sell futures contracts on the US stock market. He would drive the price of the stock down... then withdraw the sell orders, but the price would already have fallen. He would then buy the orders back and guarantee a profit for himself. According to the charge sheet, he did these thousands and thousands of times over many years.
“This is an amazing insight into the way computers have completely transformed the stock market business,” Peston continued. The trader had made a staggering profit of $40 mln. This incident raised two main issues for all financial services companies:
First, the regulator’s primary concern is to ensure financial stability of the markets and protection of investors by ensuring orderly trading.
Second, the importance of IT Project Management for Financial Services companies and the implementation of the of a thriller economics - it’s a most editor Robert guidelines pertaining to Systems and Controls.
In today’s financial world, a client’s order to buy or sell a financial instrument will seamlessly flow through several stages and most likely be dealt by different Financial Services companies, each providing a specific service in different parts of the world prior to its execution and final settlement. The European watchdog ESMA has issued guidelines on how the Financial Services companies’ ETS should be organised, as well as allocated responsibilities between them while processing client’s transactions. In a nutshell, these guidelines dictate requirements on:
1. The suitability of trading systems.
Systems should be procured based on a formalised governance process. Further to being fit for purpose, systems should embed compliance and risk management principles. Their capacity and reliance should be sized to meet demand, security independently certified, and archive records to the extent of being able to reconstruct any transaction.
2. Fair and orderly trading.
Pre- and post-trade controls should be in place to limit access and intervention of transactions, limiting participants of order entry book and minimising operational risk.
3. Preventing market abuse.
Known patterns of market abuse such as ping orders, quote stuffing, momentum ignition, layering and spoofing should be detected and restricted.
5. Business continuity.
Financial Services companies offering DMA to their clients have the responsibility to monitor the activity of their clients and the authorisation to survey their IT infrastructure as well as intervene on transactions
A disaster recovery plan should be in place with specified recovery options and duration, duly tested.
Proper documented as unit, system, user test scripts for all acceptance testing.
Managing an ETS project for a Financial Services company requires a knowledgeable and experienced project manager that will guide the team through a sound project cycle.
Specifying deliverables, budget and timeframes coupled with good understanding of what is readily available in the market, capabilities and solid understanding of hardware, software and communications are the main characteristics of a good project manager. Last but not least, the project manager should have a thorough understanding of the business model of the Financial Services company and a good insight of product and services to be sold and the target markets. A project cycle should include the following seven steps:
Define the processes that need to be
1. Business analysis.
2. System architecture.
High level design of the system including infrastructure, software, networking and integration with internal and external systems. for each subrequirements
3. Development of system requirements
system. Scope and develop detail specifying expected deliverables.
Engaging external IT companies for the provision, implementation, training, certification as per requirements
Performing unit, system and user acceptance testing based on scripts developed by the business analysis team to ensure that the functionality is as expected.
Arranging for taking live the system and monitoring operation.
Day to day operation of the system with exception reporting.
Assessment of the project and its results to deduce whether it met its initial objectives within the timeframe and budget and quality.