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,"
"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
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
"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
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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