By Anthony Malakian, Waters
19 May 2010
After nearly two weeks, the US Securities and Exchange Commission (SEC) has released its findings on what transpired on May 6 between 2:40 p.m. and 3 p.m. and how to prevent a 1,000-point Dow Jones Industrial Average (DJIA) plunge from happening again.
As expected, the SEC is proposing industry-wide single-stock circuit breakers for when a price on an individual stock moves 10 percent or more in a five-minute period. The industry is warming to this proposal that would help prevent systemic failure, and has been embraced by the New York Stock Exchange (NYSE).
But on a smaller, more focused level, NYSE Euronext CIO Steve Rubinow says the exchange already offers a product on the commercial technology side that helps to prevent fat-finger mistakes, which is one possible reason for the May 6 dive.
The product is called Risk Management Gateway (RMG), and it is offered through NYSE Euronext subsidiary NYSE Technologies—formerly Wombat Financial Software. This preventative-measure technology can be deployed to customers to protect against fat-finger issues, Rubinow says. RMG is a filter in which customers can tweak the settings before they send any order to the marketplace. It can also work for sponsored access.
“Sometimes people ask me, ‘When something goes wild like this, how long does it go unchecked or unnoticed?’ With tools like RMG and other things that we use internally, if a price or a size of an order is wildly different from what we see going out onto the market at that time, it gets flagged in quite a few ways,” Rubinow says. “When we see a price that is so much different than any of the previous prices, or an order size that is highly unusual, it gets a lot of people’s attention to try and contain the aftereffects.”
While NYSE has said that it is committed to working with the SEC and other markets to find an appropriate solution to the problem as quickly as possible, there is no question that there is a new opportunity for the exchange to push this product.
Rubinow also says that because of the acquisitions that NYSE has made over the past several years, the exchange is better prepared than it was to handle these wild fluctuations in the market.
Waters recently sat down with Rubinow to discuss the challenges that the firm has faced in creating its Universal Trading Platform and the advantages therein. With its merger with Euronext and such additions as the Archipelago Exchange (ArcaEx) and the American Stock Exchange (Amex), NYSE Euronext has been able to create a scalable system across its footprint.
“We built in buffers to prepare for these huge spikes [after these acquisitions] so that we will be better equipped to handle them, and at a lower expense than we would have had in the past, across the platforms,” Rubinow says.
Even with these solutions, though, a fat-finger mistake that goes through the ripple effect can still wreak havoc.