What Glitch?

Market Structure Confidence

Highest Since Before Flash Crash
The TABB NYSE System Glitch Survey Results

Sayena Mostowfi / Valerie Bogard | July 2015 | www.tabbgroup.com

2015 The TABB Group, LLC. All Rights Reserved.

May not be reproduced by any means without express permission.

There were 266 respondents to the TABB NYSE System Glitch Survey, 27% consisted
of Buy-Side Firms and 32% Broker Dealers.

Respondents Demographics
Media, 2%
Broker Dealer Proprietary Trading
Firm Only, 5%

Academia, 2%

Regulator /
Legislator, 2%
Asset Manager /
Hedge Fund, 27%

Broker Dealer Market Maker with

Customer Flow, 9%

Execution Venue /
Clearinghouse, 11%

Broker Dealer Agency Broker, 18%

Consultant, 11%

Vendor, 12%

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

The confidence in the US Equity Market Structure is at a 5-year high with 64% of the
respondents having High/Very High confidence and 18% Neutral.

Question #1: Please rank your confidence in the US Equity Market Structure.

Flash Crash - May 2010

Facebook IPO glitch - June 2012

12%
5%

Release of Flash Boys - March 2014

Chair White speech - June 2014

32%

31%

Knight trading error - August 2012 2%

Hash Crash - April 2013

41%
33%

32%

4%

20%

17%

NYSE trading glitch - July 2015

19%

Very High

26%

38%

28%
45%

Neutral

12%
18%

36%

High

8%

28%
35%

18%

Weak

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

3%
7%

26%

30%
27%

Grand Bargain - Feb 2015

24%

32%

26%

9%

12%

11%
11%

7%

10%

5%

13%

5%

Very Weak

The least negative (Weak/Very Weak) respondents were Execution Venue/Clearing

House (11%) followed by Vendors (12%) and Asset Manager/Hedge Funds (13%).

Question #1: Please rank your confidence in the US Equity Market Structure.

Broker Dealer - Proprietary Trading Firm Only (13)

Vendor (33)

31%
9%
29%
51%

19%

Broker Dealer - Agency Broker (48)

23%

Consultant (29)

10%

48%
32%

Academia (6)

Very High

9% 3%

18%

11%

20%

0%

13%

33%

2%

20%
24%

24%

5%

15%

20%

7%

20%

33%

High

8% 5%

21%

10%

50%
17%

15%

18%

40%
40%

15%

21%

45%

20%

Broker Dealer - Market Maker with Customer Flow (25)

Media (6)

43%

15%

Total (266)

Regulator / Legislator (5)

8%

64%

Execution Venue / Clearinghouse (28)

Asset Manager / Hedge Fund (73)

46%

4%

17%
50%

Neutral

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

Weak

Very Weak

Over three-quarters of the respondents were not negatively impacted by the NYSE
system glitch.

Question #2: What impact, if any, did the July 8th NYSE glitch have on your business?

Execution Venue / Clearinghouse (28) 4%

18%

Broker Dealer - Agency Broker (48)

17%

Broker Dealer - Proprietary Trading Firm Only (13)

15%

Consultant (29)

57%

18%

69%

15%
85%

10%

72%

17%

Total (264) 1% 7%

75%

15%

Broker Dealer - Market Maker with Customer Flow (24) 4%

Vendor (33)

79%

3%

18%

67%

17%
80%

20%

Regulator / Legislator (5)

80%

20%

Very Positive

85%

Positive

No Impact

3%

17%

Academia (5)

Asset Manager / Hedge Fund (73)

2%

17%

76%

Media (6)

4%

15%

Negative

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

Very Negative

Institutional firms (37%) and broker dealers with customer flow (25% of market makers
with customer flow and 42% agency B/D) are revisiting closing auction procedures.
Question #3: Has your firm tested procedures for changing the source from the primary closing auction to an
alternative mid-day?
22%

Yes, it is fully tested

46%

Considering the events of yesterday, we

will be revisiting the issue
No, it is not necessary

32%

Regulator / Legislator (3)

67%

Broker Dealer - Market Maker with Customer Flow (24)

42%

Broker Dealer - Agency Broker (45)

27%

Vendor (24)

25%

Execution Venue / Clearinghouse (25)

24%

Asset Manager / Hedge Fund (71)

15%

Broker Dealer - Proprietary Trading Firm Only (13)

15%

Consultant (23)
Academia (4)
Media (5)

33%

13%

25%

33%

42%

31%

25%

50%

16%

60%

37%
15%

48%
69%

48%

25%
20%

39%
75%
80%

Total: 237
2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

If the primary was unable to conduct a closing auction, over 60% of non agency broker
dealers and buy side firms would utilize last print from consolidated tape or closing price
designated by the primary.
Question #4: If the NYSE -- or any primary listing exchange -- were unable to conduct a closing auction, how
would you have marked your books/portfolios/positions?
Last print from consolidated tape
27%

32%

The closing price designated by the primary

Last print from exchange w/ largest market share
The final 1 minute VWAP

6%
4%
9%

Weighted average of all the closing prints

22%
Not sure

Broker Dealer - Proprietary Trading Firm Only (12)

Asset Manager / Hedge Fund (70)

39%

Broker Dealer - Market Maker with Customer Flow (25)

Regulator / Legislator (2)

Vendor (25)
Academia (5)
Consultant (25)
Media (5)

23%

36%

Broker Dealer - Agency Broker (45)

Execution Venue / Clearinghouse (26)

25%

58%
24%

31%

17%
13% 1%6%

19%

8% 8% 4%

20%

13% 2% 11%

15%

31%

42%

8% 8% 4%

50%
36%

20%
16%

35%
50%

20%

20%
28%
40%

4% 8%

24%
20%

32%

60%
8% 8%
20%

16%
20%

Total: 240
2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

Market practitioners are more skeptical about whether Reg SCI will prevent future
system glitches.
Question #5: How will Reg SCI impact future system glitches?
6%

Reduce the number of market glitches

16%

No difference before / after

44%

I do not know
33%

Hinder resolving market glitches

Media (5)

80%

Academia (6)

50%

Regulator / Legislator (5)

Consultant (29)

20%
50%

40%

20%

21%

Vendor (32)

16%

Broker Dealer - Proprietary Trading Firm Only (13)

15%

Execution Venue / Clearinghouse (27)

15%

Broker Dealer - Agency Broker (48)

13%

Broker Dealer - Market Maker with Customer Flow (25)

12%

Asset Manager / Hedge Fund (72)

11%

40%

28%
25%

45%
47%

31%
41%

46%
40%
32%

7%
13%

46%

8%
41%

31%
40%
54%

4%

10%
8%
3%

Total: 262
2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

Over half of the respondents ranked staying abreast of upcoming regulations and
responding to regulatory inquiries as the biggest compliance challenges.
Question #6: Please rank the following compliance challenges (1 = most challenging, 6 = least challenging).

Staying abreast of new and upcoming

regulations

38%

Responding to regulatory inquiries

Having a consolidated view of trading
activities and risk exposure
Monitoring client, regulatory, and firmbased restrictions
Getting timely notification and
management of trade violations
Not listed as an option

24%

21%
15%

8%

30%
19%

12%

20%
20%

22%
10%

19%

15%

20%

5%2%

11% 3%
20%

26%
37%

7% 5% 7% 4% 5%

Most Challenging 1

14%

20%

23%

12%

7%
15%

2%

10%

73%

6 Least Challenging

Note: Some percentages do not add up to 100 due to decimal rounding.

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.

Additional Respondent Comments

As long as the SIP is available any market center or trading venue outage is pretty much a non-event.
Markets operated around the problem. One of the un-intended consequences of Reg NMS fragmentation.
Small [impact], had to switch risk system to composite from primary. Easy.
With high tech, glitches should be expected from time to time. Software engineering is still an art,
regardless of technological advances
If NYSE fails mid day it is not a big deal. If they do not open it is a big deal for retail as wholesale markets
makers will not all use the same process causing confusion among retail investors. If NYSE does not
have a closing cross it causes confusion for institutional flows.
For me as an enterprise architect it highlights planning issues.

NYSE
Glitch
Impact

Closing
Auction

NYSE has contingency plan in place for this - based on consolidated trading.
Clients are able to choose a fallback strategy in case official closing price is unavailable.
We maintain multiple closing prices, including Primary Market close, Consolidate close, and allow the
broker to choose the valuation strategy per instrument (or default for all per exchange).

Reg SCI
Impact

I suspect the costs will heavily outweigh any benefits.

It's not the silver bullet. It may stifle creativity because it will slow the introduction of new features and
functions.
Hard to say. The extra overhead will actually mean fewer changes and a harder time responding to old
but untriggered bugs. That said, the potential fines will force firms to be more diligent.
There's no evidence to suggest the requirements of Reg SCI will reduce glitches from occurring. It will
assist in evidencing testing of systems and functionality, but again, doesn't provide any assurance that
systems glitches or failures won't occur. Inherently, technology (hardware and software) can fail regardless
of any rule that requires testing.
If sufficient and effective monitoring, along with fundamental modernization, glitches will be reduced.
Adding prescriptive and rigid processes to software development and operations doesn't make for more
reliable systems. The focus of Reg SCI should be to address single points of failure in the market (i.e.
SIP, opening/closing auctions, IPO's) by creating viable alternatives and procedures.

2015 The TABB Group, LLC. All Rights Reserved. May not be reproduced by any means without express permission.