We spoke in class about how important technology is to the financial markets and securities trading. Rather than men and women running around physical stock exchange floors yelling buy and sell prices, the computer has enabled us to eliminate the need for physical interaction implementing technology at almost every step of the process. We can all look back and realize how much technology has impacted and innovated the securities market. The London Stock Exchange currently boasts that with their advanced technology, a single stock trade can occur over 30 times faster than the blink of an eye. Wow. With that said, I think most are blinded by how amazing technology is today and fail to realize that within that same blink of an eye, and entire stock exchange can be shut down for hours. According to the Wall Street Journal article, “London Exchange Paralyzed By Glitch,” just yesterday, trading in shares of some of the United States’ and Europe’s largest companies were cut off for over seven hours as a glitch in the technology behind the scenes caused a system failure. Not only was the London Stock Exchange itself paralyzed by the technological failure, but other exchanges throughout the world such as Johannesburg Stock Exchange were also suspended due to their reliance on London’s TradElect and other parent software systems.
Yesterday was not just an average day across world markets; it was one where the US Government had officially decided to bail out mortgage lenders Fannie Mae and Freddie Mac. With that said, the New York Stock Exchange (NYSE) experienced its third highest trading day EVER while at the same time those who relied on the London Stock Exchange for trading simply sat at their computers both losing money and causing login jams on the LSE system servers. Luckily, some investors turned to alternate trading floors to conduct pertinent and time-sensitive trades with LSE’s smaller competitors such as Chi-X Ltd.
While the article goes in to further detail regarding yesterday’s importance and more details on how other European markets fared in response to LSE’s failure, it is important to note that while technology provides advanced efficiency, speed, and capability regardless of physical location it also allows for added risk in securities trading when money and success are both at stake. As major exchanges involved with the securities market look to pinch pennies and squeeze the maximum profits from their operations, they look to save money, sometimes on their technology and equipment. In an effort to keep costs low an exchange may choose a less expensive system providing fewer maintenance and support technicians. However, in an effort to be competitive and lower costs such failures as seen yesterday could end up costing millions to an exchange and those involved in the securities markets affected. While the monetary effects of yesterdays incident has not yet been calculated we can be assured they will hurt the LSE’s reputation and could force traders to rely on other exchanges throughout the world.
System failures such as the one yesterday force us as technologically oriented people to take a step back and realize the damage that can be done with such a heavy reliance on technology. Keeping this in mind it is imperative that proper technological maintenance and security be practiced in the information technology world as the economies and structures throughout the world rely on it.
Article drawn from the WSJ: http://online.wsj.com/article/SB122088611707510173.html?mod=hps_us_pageone
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As an update on this situation...I found an article on wsj.com (http://online.wsj.com/article/SB122098793473715877.html) that says that trading on Tuesday on the LSE was at 1.1 million shares and the average trading volume is only 716,000 trades. This could show that there were no major effects on the trust that people have in the exchange and that there aren't going to bee any adverse effects of the power glitch. However, it could also just be because so many people were unable to do trades on Monday that they were doing their trades on Tuesday. A better check on the trust in the market will be how trading continues over the next week or two.
I agree with you Alex. It is true that technology has made financial transactions much easier than it was before. However, the London stock exchange failure is a classic example to persuade the fact that we cannot always rely on technology. Technology may have both pros and cons on investing decisions. The United Airlines stock collapse on Nasdaq after Bloomberg terminals across the world published a headline declaring the parent company of United Airlines had filed for bankruptcy protection is another classic example that we cannot always rely on technology. As a result, the investors who sold their shares were losing money.
I believe technology is the best thing that ever happened to the stock market. These events should not be a suprise to anyone as any innovation has its defaults. If we compare how much value and money these innvations have generated for the market versus the losses that have being made, we can comclude that the benefits overweigh the costs. Some developing countries, mostly in Africa, do not trade in a year what the U.S trades in a day, not because of fund issues, but due to a lack of technology in generating fast trades.
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