Knight Capital failure prompts Asian demand for FX trade systems monitoring

By:
Russell J. Dinnage
Published on:

The collapse of Knight Capital’s electronic trading systems in August caused a large upswing in demand from FX dealers in Asia for computer network security-monitoring hardware, says Donal O’Sullivan, Corvil head of product management.

Corvil is an Ireland-based company that specializes in developing monitoring and risk-management hardware for computer-server networks that house trading platforms, which transact FX and equities products.

O’Sullivan says concerns about the systemic integrity of FX trading systems in Asia are growing.

These concerns are rooted in the large geographic distances between currencies’ trading locations in the region, such as Singapore, Sydney and Tokyo, and differences in the efficiency of electronic transaction networks from one country to the next, he says.

However, after the failure of US-based brokerage Knight Capital’s electronic systems last month forced the company to take a $440 million loss on erroneous trades recorded over 45 minutes – due to a faulty computerized trading system – a new wave of clients emerged in Asia seeking access to Corvil’s systems, says O’Sullivan.

"On the back of recent high profile failures, all of our customers started calling us up asking how they could use our systems to prevent them from becoming the next victim," says O’Sullivan.

"We are working with several high-profile customers, analyzing their trading behaviour and helping ensure the technology is not trading them into oblivion."

Post Knight Capital, O’Sullivan says there was an increase in enquiries about Corvil’s products in Asia – some 10-times larger than that typically generated when the firm announces news of a new customer to the market.

O’Sullivan says that, despite their concerns, Corvil’s customers were unwilling to participate in an announcement on Wednesday from the company, emphasizing its readiness to provide hardware risk-management solutions for trading systems in Asia through a distribution partnership with UK telecoms group BT.

In 2011, Corvil installed its computer hardware monitoring systems on the FX and equities trading platforms in the Singapore Stock Exchange. In March, the same systems were installed in the Tokyo Stock Exchange.

The Corvil hardware is typically connected to the server network, where an FX or equities trading platform is housed.

The hardware assists FX transaction cost analysis by identifying so-called performance bottlenecks within a computer server that form when the volume of electronic trades processed causes the server to slow down or crash, says O’Sullivan.

However, the hardware can also be used to secure a server network that faultily speeds up, as was the case with Knight Capital’s systems failure last month, adds O’Sullivan.

These types of technological problems are magnified in Asia by differences in the strength of the electronic systems supporting FX and equities trading networks from one country to the next, he says.

"In Asia, in FX, these differences are a significant issue and – if you ask traders – there are huge technological problems, and [Corvil is] helping lots of companies work their way through these issues," says O’Sullivan.

Is the next Knight Capital-style trading systems failure lurking around the corner in Asia?

"We hope not, but it is impossible to rule out," says O’Sullivan.