NEW YORK Oct 9 Exchange operator Nasdaq OMX
Group Inc said on Wednesday it is partnering with a
unit of high-frequency trading firm Tradeworx on an algorithm
testing site for firms to examine automated trading strategies
and reduce operational risk.
A number of high-profile glitches at trading firms and
exchanges in recent years have roiled markets and impacted on
investor confidence, causing regulators to place more scrutiny
on risk controls for trading software and other technology.
Algorithmic trading uses computer programs to navigate a
complex market structure made up of 13 exchanges and dozens of
non-exchange trading platforms, placing orders that can be
executed within fractions of seconds.
The new "Algo Test Facility," which will be accessible
through Nasdaq's data center, will allow firms to test their
trading programs using historical market data to simulate
trading on all major U.S. stock exchanges, and is expected to
launch in the first quarter of 2014, Nasdaq and Tradeworx said.
"Algos-gone-wild" have been in the spotlight since last year
when a software error at Knight Capital Group sent a high-speed
flood of unintentional trades into the market, financially
crippling the firm and forcing its sale to rival Getco LLC.
There have been a number of market-related glitches since then,
including a three-hour outage in Nasdaq-listed stocks in August.
All "market participants need to adequately test software
that interacts with the market, and given how much trading
volume is generated algorithmically today, the testing of these
algorithms has to be a key component to the industry's efforts,"
said Manoj Narang, chief executive of Tradeworx.
The Financial Industry Regulatory Authority conducted a
sweep of high-frequency trading firms this summer, seeking
detailed information on the testing and supervision of trading
algorithms and other software. And last month, the U.S.
Securities and Exchange Commission (SEC) ordered stock exchanges
to jointly draft an action plan to strengthen and improve the
resilience of their critical market infrastructure.
The costs associated with operating, monitoring and
upgrading technology can be significant, and both Nasdaq and
Tradeworx offer services to firms and organizations as
cost-effective alternatives to in-house development.
Nasdaq has responded to a multiyear decline in trading
volumes by diversifying away from transaction-based revenues and
into services that provide a steadier income flow, like
providing technology and data to other companies.
Red Bank, New Jersey-based Tradeworx, sells trading
technology to other firms and recently developed a system for
the SEC that gives the regulator access to real-time trading
data, helping it better monitor and analyze the market.