IT project man­age­ment mat­ters as the 2010 Wall Street “flash crash” showed

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

4. The

pro­vi­sion

6. Suit­able

of

Di­rect Mar­ket

5. Busi­ness con­ti­nu­ity.

testing method­ol­ogy.

stages

such

Ac­cess.

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.

au­to­mated.

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

4. Pro­cure­ment.

5. Testing.

6.

Roll­out.

7. Op­er­a­tion.

8. Au­dit.

sys­tem

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.

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