Even though the flash crash happened seven months ago, the debate rages on. And since CEP is a common piece of our modern financial computing fabric many firms have entered the debate with vested interest. Unfortunately, most vendors wrap flash crash observations with veiled sales pitches for CEP-based risk management, or disingenuous calls to "catch the rogues and scoundrels" with CEP-based surveillance systems. Although these applications are important, to suggest they are a magical elixir to ward off future breakdowns is misleading at best.
But thoughtful discourse does continue, and the recent Securities and Exchange Commission report has reinvigorated debate. Richard Tibbetts, StreamBase CTO, weighed in with a piece called "What Does the Flash Crash Mean For Financial Software Engineering?" on Tabb Forum this week. Richard's view on the flash crash examines the role of financial software engineering and the efficacy of data processing, integrity, and reliability within the fabric of the infrastructure. The role of financial engineering is an essential, overlooked, and misunderstood piece of the puzzle. Richard's thoughts go like this:
"In all the conversation about the crash, the real historic change is going unmentioned. In the very last paragraph of the Lessons Learned section of the report, the authors note: “another area of focus going forward should be on the integrity and reliability of market centers’ data processes, especially those that involve the publication of trades and quotes to the consolidated market data feeds.”
This is a key insight – late in coming – that will expand over time. Traditionally the SEC has focused on regulating the behavior of market participants, identifying deliberately malicious behavior or patterns of behavior. But now they are beginning to realize that data processing, integrity, and reliability can be just as important. The efficient functioning of markets is in just as much danger from software system failures as it is from malicious traders..."
The role of financial engineering is much broader than CEP, and deserves deeper discourse. To read more, continue reading Richard's piece on Tabb Forum (which requires a free registration) here, and watch for more over the coming months on Tabb Forum, on this blog, and on Richard's blog on software engineering and innovation, Hyperextended Metaphor.