Monday, December 3

Terrorism / Influenza - impact on networks

An interesting column on how an influenza simulation in NY threw up issues with network congestion and management. Firms have to be up to date with their homeworking strategies but also, the attempts by the government to push for super-fast broadband has to be considered within this angle. If something like this happens in the UK, we will be sorely hit.

But I have some comments: network congestion might well happen, but looking at what happened in 9/11, the level of trading falls off dramatically as people look to close out their books and do not take any further customer orders. They might also just go back to relying on their capital and take any pending orders on the firm's books rather than risk taking it to market and find that its lost in the ether or worse, the price formation process has had some eddies and the prices is stuffed.

So the situation is not that much of an issue, but what might be required to think about is the capability of the firm's capital to handle what amount of trading? Also, if that is the case, then the sales trader will be pushing trades away and will need better voice rather than data connectivity, while on the other hand, the market facing trader might as well as take the trades on his own book.

Still read and consider!

Nothing but Net?
For years, the financial services industry has led the way when it comes to business continuity, participating in a number of industry-wide tests. The most recent US test, conducted by the Financial and Banking Information Infrastructure Committee (FBIIC) and the Financial Services Sector Coordinating Council (FSSCC), simulated a global H5N1 influenza pandemic. By Rob Daly

The sponsors are still poring over about 300,000 data points gathered during the three-week test, but the early results are interesting.

The good news is that Wall Street can withstand a pandemic. The industry's performance was unfazed by an absenteeism rate of 25 percent and only saw performance degradation when the absenteeism rate approached 49 percent-a higher rate than estimates by the World Health Organization (WHO) and the US Centers for Disease Control and Prevention.

Most participating firms, 54.5 percent, tackled their business and regulatory obligations by setting up their employees with telecommuting capabilities. The next most popular response, 40.8 percent, was dividing business groups into a number of units and dispersing them geographically.

An interesting aspect of the test was the amount of stress a pandemic would have on other critical infrastructure, such as the Internet. During one portion of the test, residential Internet throughput was reduced by half due to network congestion, which reduced the real-time performance of market data feeds by several minutes and caused intermittent outages of non-real-time applications, such as e-mail.

This level of network performance doesn't bode well for traders. Operating their bandwidth-hungry trading and market data applications over a residential Internet connection would be like sucking a beach ball through a garden hose. Traders would need to come into the office to take advantage of their firms' financial extranets to get low-latency market data.

However, two types of traders could make the work-from-home strategy work: those who operate in the over-the-counter world and rely solely on voice brokerage, where latency isn't as critical as in electronic execution; and algo-based traders, whose systems are co-located within the market centers.

Since their low-latency connection would be a local network hop or less away from the market, their traffic wouldn't compete with other network traffic from the outside world. It would also mean that algo traders would have to turn over more control to the local servers and keep trader-to-algorithm communication to a minimum.

Local fat-client applications would work the best in this environment compared to applications incorporating service-based architecture or relying on Citrix connections that depend on network availability. But how many firms have taken reduced bandwidth availability into consideration in their business continuity plans?

Of course, overcoming the network latency issue is just one hurdle to trading from home. Firms need approval from the proper regulatory bodies and must be willing to pay the additional licensing fees to application and market data providers to set up the necessary remote trading positions.

To keep trading desks up and running, working from home just doesn't seem to be a practical solution. Instead, firms should plan to keep their traders close and be prepared to feed and lodge them for extended periods.

All this to be taken with a grain of piquant salt!!!

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