Liquidity

In the face of soaring trading volumes, driven by reaction to the Covid-19 pandemic, firms must ensure their trading infrastructure has the capacity to cope, warns Guy Warren, CEO of ITRS Group

Things are moving increasingly fast in the new reality of the Covid-19 pandemic, as lockdowns and travel bans are announced daily, phone updates are pinging every minute and live news streams are monitored zealously. 

The global financial markets are leading the pack in terms of minute-by-minute reactions to breaking news. In addition to the rapid closure of borders that is halting businesses and causing stock brokers to take pause, individual announcements such as the recent lockdown of London – one of the world’s leading financial centres – can trigger even more violent spikes in volatility.

As panic sets in, investors race to pull their money from risky shares into safe ones – that is, shares not impacted by the pandemic and that pay a good dividend. At the same time, in the world of currencies, we’re already witnessing a move away from sterling towards the US dollar. Bonds have been similarly swept into the fray as a result of central banks dropping interest rates by half a per cent. 

Planning for the unexpected

In short, the three main asset classes in the world – shares, bonds and cash – are being massively affected by the decisions that governments and individuals are taking every second. The fallout is that enormous amounts of money in trades outside of asset classes are being moved incredibly rapidly, creating an unfathomable amount of simultaneous transactions. Where a typical busy trading day might see twice the normal trading volumes in the market, what is currently being witnessed is an average fivefold increase.

Firms expecting this unprecedented situation to blow over any time soon will be unpleasantly surprised. Rather than being a blip in global markets, such heavy global trading is expected to continue raging – and potentially even worsen right through to summer, or until there is a significant fall in new cases of the coronavirus.

As a result, fund managers will be forced for the foreseeable future to put on a smile and continue to trade ‘business as usual’. That doesn’t mean to the best of their abilities in light of the present challenges, it means continuing to meet customer demands without missing a beat. If they have a volatility-induced outage while a client is trying to move asset classes, that client will be out of pocket and leave. Those fund managers who aren’t prioritising the resilience of their trading infrastructure right now will soon find themselves part of the collateral damage from Covid-19.

To begin future-proofing themselves, firms must first understand their present headroom. All systems have a limit of how many trades they can do per minute, yet many firms do not know what this limit is, let alone how to address potential points of failure. Now is the time to end the trial-and-error approach to capacity and get a handle on the exact volume their systems can house today.

Right tools for the job

Capacity-planning tools are essential, helping firms to not just calculate headroom, but to identify where potential pinch points exist within their IT systems. This enables them to better understand where and when a failure may occur, and establish solutions to avoid disruption down the line.

The right software tools can also assist in modelling and stress testing a variety of worst-case scenarios. By mimicking situations that haven’t yet happened, firms can better predict what their systems can and cannot withstand, and take any necessary remedial measures. 

For example, if a firm has just had a 4x day, they can model what a 6x or an 8x day might look like on their systems. From there, predictive software can tell them where the pinch points will be and model any consequent changes they would like to make to their estate to give them more headroom.

Today, individuals and businesses alike know the only certainty is that nothing is certain. Many are asking themselves what new announcements the next few days and weeks could bring. Who will be the next to announce a lockdown? What industry will be the next to take the blow?

While the answer to these questions may elude us, there is one thing firms can do to regain control of the present situation. By harnessing the power of data and the right software, they can gain crucial insight into their IT estates now – and avoid outages come the next announcement. 

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