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Fast buck versus reliability

Fast buck versus reliability

The man in charge of updating the ASX trading system puts stability first.

Jeff Olsson has a consuming need for speed, but not at any price. As the group executive for technology at the Australian Securities

Exchange, the man millions of shareholders rely on to ensure market

trading happens seamlessly says he won't gamble system stability away

for a couple of milliseconds.

The most volatile year in the history of world markets is finally

drawing to a close and Olsson appears visibly relieved that he's bided

his time on the biggest technological changes the market operator has

attempted since computers replaced chalkboards in the mid-1980s.

Over the coming year, the ASX will roll out a series of complementary

systems to upgrade its equities trading platform, ITS (Integrated

Trading System), so it can deliver so-called direct market access and

latest algorithmic trading services offered in other markets.

Budgeted at about $25 million, the upgrades will also substantially

boost processing speeds and capacity through new infrastructure.

The moves come after an initial delay caused by concerns about the

software needed for the ITS upgrade.

Olsson says the upgrades are already in hand as broking houses and

institutions take up the ASX's offer to let them put their own

black-box trading systems onto rack-space within the market operator's

data centre to further cut lag times by a fraction of a second.

"They want an extremely fast turnaround," Olsson says. "It means you

are cutting out the network component altogether . . . the couple of

milliseconds become important."

ASX customers, which include superannuation funds and investment

banks, know how to agitate too.

Broking houses and institutions beholden to the ASX's effective

monopoly as a market operator have been pushing hard for the new

trading functions as a way to keep pace with the offerings of other

exchanges around the world.

The trading functions include a swag of new services that fall under

the umbrella of direct market access whereby participants (including

high-rolling hedge funds) can push through very big trades without

their identities being revealed and prices being impacted.

Brokers say this allows them to get in and out of positions much

faster and more profitably.

Chief among arguments put forward by the ASX's critics is that it has

put innovation on the backburner compared with other markets around

the world because it has not been forced to compete.

A persistent theme is that the ASX's systems are old, inflexible and

burdened by a legacy code-base.

"There's a big misconception that as soon as competition hits we are

going to suddenly have to expand all of our systems . . . and we have

these legacy systems that we haven't been investing in for years,"

Olsson says.

"We have a policy of continual reinvestment in our systems, we have

not been out repairing bicycle tyres."

But the legacy argument isn't the only one Olsson is keen to reject.

He cautions that over the past few years, the preoccupation of some in

the market with the sheer speed of execution of trades can lead to

malfunctions with the potential to put the capital markets of whole

economies offline at the worst time.

"If you go back and look at . . . some of the exchanges around the

world, things like reliability, security, capacity, availability,

those things are all passe," he says. "It's all about latency

suddenly."

An example was the malfunction that took the London exchange offline

for nearly a trading day in September - the same day the US government

revealed its bail-out for mortgage funds Freddie Mac and Fanny Mae.

"The issue there [London] was that they were really keen to reduce

latency but there are a few more fundamentals than just latency."

Olsson makes the point that when world markets do go into upheaval,

those throwing money around don't tolerate technology failures

lightly.

"The issue you have got with the liquidity and fluidity of global

[capital] flows [is] they can move in and out of jurisdictions

overnight," he says.

But providing a market trading system that can rapidly beef up its

capacity and still deliver value on costs is no mean feat.

One issue is that even though the volume of trading can rise, it

doesn't necessarily follow that the monetary value of those

transactions increases.

Another challenge is that rising volume levels mean the high water

mark used to estimate how much extra system capacity is needed to

absorb the next peak comfortably is constantly rising. Olsson says

four years ago the average daily volume of trades was about 64,000.

Two years ago, it reached 200,000. This year's initial peak of about

430,000 was surpassed in September when the ASX processed 860,000

trades in a single day, with no technical glitches.

Online retail brokers were not so fortunate, with ANZ's eTrade

suffering problems thanks to systems-straining high volumes.

Olsson says that as soon as the ASX increases its processing capacity,

brokers have to follow suit and this does not come cheap. "If you

don't balance this well, you impose a huge cost burden on the whole

financial community," he says.

Fairfax Business Media

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