We Are Accountable for Safety of Markets
September 10, 2012
SAN FRANCISCO -- From the Flash Crash of May 2010 to the flood of erroneous orders that nearly killed the largest market maker on Wall Street, there is no escaping who is responsible for making sure technology in use works reliably, safely and effectively.
“The events of 2010 and 2012,“ said Rod Burns, Director, Electronic Sales Trading Team, Bank of America Merrill Lynch, “have made all of us much more accountable for the kind of technology either we advocate or that we use.’’
“If you look at these events, each one of us is counted on to explain at least preliminarily what may have happened,’’ said Burns, in remarks opening a buy-side summit at TradeTech West at the Weston St. Francis Hotel here.
Who deserves the explanation? Investors who trust brokers, trading firms, exchanges and other users of technology for accessing stock markets and executing trades to make sure their orders get handled properly. And who deserve to know “how do we protect them in the future,’’ he said, to the gathering of institutional traders and technologists.
“2012 has been one of the most challenging years in recent memory with regards to electronic trading,” he said.
• MARCH: The failure of BATS Global Markets to take its own stock public on its own listing market using its own technology.
• MAY: The Facebook “disaster,’’ where trading was delayed and a host of problems disrupted the allocations of shares and other aspects of the first day of trading in its shares.
• JULY: A wave of oversized orders at five times the average daily volume of the stocks involved that came onto the market.
• AUGUST: The flood of orders that cost Knight Capital $440 million and 73% of its own shareholders’ equity.
That glitch happened because the Street’s largest market maker “fail(ed) to test its technology before accessing the market,’’ using newly created computing code.
This, and the other events, are “reminder that we need to fully understand the technology that we are using today on our desktops to access the market,’’ said Burns, who, earlier in his career, was head of electronic sales and account origination in the United States for Knight Capital Group.
“Regulators will be taking a hard look” at the Knight case and that day’s events “may ultimately impact all of us,” he said.
In the wake of that latest technical disruption, the Securities and Exchange Commission has set October 2 as the date for a day-long industry roundtable on errors and how to prevent them.