How to lose USD 9 million in an hour

What’s in a call? In this world of algorithms and billions of dollars being traded in each second, the idea of a trade being done over the phone seems anachronistic.

But for fixed income, commodities and currency (FICC) trading it is still all about voice trading using either a phone or Unified Communications (UC) platform. These exotic trades need explanation, negotiation, agreement. And thanks to the complexity of the financial instruments traded and the risk of speculation, the regulators expect all of this to be recorded across email, text and voice.

All this means that for FICC traders, their Dealerboard or Turret voice trading systems are mission critical.

So what happens if the voice trading system goes down?

Well, you’ve just started to answer the question how to lose over $9 million in an hour.

In addition to maximizing profitably with reliable voice trading networks, financial services firms must also meet regulatory obligations. Put simply, trading must be halted if compliance is not possible. 

A malfunction of the recording system will quite literally silence a trading floor.

Large players in FICC trading have trading volumes in the billions of dollars per year, meaning every minute a system is shutdown translates to substantial losses. It goes without saying that the reliability of the voice trading solutions is critical to the financial success of the business.

So, reliability is vital – and being able to rely on your reliability is the key.

An ITIC survey from 2016 found that reliability requirements for the Banking and Finance sector were above the average of other industries, and that 86% of companies in this sector require a minimum of 99.999% (five nines) of uptime from their IT systems. 

In non-IT speak, this means less than one hour per year of downtime– with financial institutions reporting that they can lose an average of $9.3 Million during one hour of downtime.

But here’s the rub: UC systems have a base reliability of no more than 99.5% guaranteed uptime under industry standards. That means at the very highest performance level, an investment firm will lose 29 hours. At an average loss of $9.3 million per hour, that’s a costly $269.7 million thrown away.

Manual testing increases system uptime to 99.8% on average, a 0.3 percent improvement in reliability that cuts downtime to 12 hours. That’s still $111.6 million in losses that could be prevented by keeping voice trading systems up. Plus manual testing adds operational costs to deployments and regular upgrades.

Automation can increase system reliability up to minimum of 99.99%, which reduces downtime per year to 36 minutes or less. That brings voice system outage losses down to about $5.6 million (and that’s for the year, not the hour!). That’s still a hefty sum, but a mere fraction of what is lost through manual test or no testing.

A more proactive automated program that increases frequency and includes after-hours testing can get that reliability up to the all-important ‘five nines,’ driving annual downtime to just five minutes.

That brings the downtime loss below a million to $775,000.

An automated solution costs about two percent of the overall UC and voice trading system but represents a 60 to 70 percent annual savings compared to manual testing. 

I think we can all agree that’s rather modest compared to the savings in preventable loss, in the hundreds of million dollars.