Banks and investors are pushing for more detail on business continuity plans from the world’s major stock exchanges, as traders bed in for an extensive period working away from their offices.
Three trade associations — the Global Financial Markets Association, the FIA and Asifma — have been working on a questionnaire to send to about 20 of the most systemically important companies, according to people involved in the drafting.
It will include questions on the depth and scope of coronavirus plans, whether the plans have been stress-tested recently, and who is responsible for them. It will also ask how exchanges and other parts of the financial markets’ infrastructure tackle concerns over slower connection speeds for traders working from home, and how they plan to communicate on issues such as margin and collateral requirements.
The industry and authorities have regularly updated these policies since the September 11 terror attacks in 2001 but regulatory demands have soared since the financial crisis. The virus disruption has added further pressure to review these arrangements.
Capital markets have swung wildly in recent weeks, but exchanges, clearing and settlement houses have broadly held up. Practices designed to smooth volatile markets, such as circuit breakers — which suspend trading after quick and deep drops in price — have kicked in as expected.
“Market supervision has become far more automated and dynamic since the last crisis. Everything is working as it was designed to do, including in the context of ‘working from home’ protocols,” said Euronext, which operates six equity exchanges around Europe.
That has helped exchanges to rebuff the suggestion that they should shut during the coronavirus crisis. Still, the prospect of months-long disruptions to normal working practices has encouraged banks, brokers and other market participants to demand more information about exchanges’ business continuity plans.
One person involved in the drafting of the questionnaire said it was designed so that banks and brokers could see plans “at a glance” and make sure there was a collective effort under way.
Recipients will include the London Stock Exchange Group and its clearing houses in the UK, France and Italy; futures bourses Intercontinental Exchange and Eurex; Nasdaq Nordic; Euronext; equities clearing house EuroCCP; settlement houses Euroclear and Clearstream; and Swift, the financial messaging provider.
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Virginie O’Shea, an independent adviser to the industry, said the operations teams at banks and asset managers were struggling to cope.
“There are numerous teams working late into the night to process the trading peaks across the globe on systems that just weren’t built for large teams working remotely,” she said. “The market infrastructure guys have it tough, but not as tough as post-trade staff at financial institutions at the moment.”
The LSE said it had “robust business continuity arrangements in place to ensure the safe and orderly conduct of our businesses and market operations”.
Authorities have eased some regulatory requirements for traders working remotely. However, they remain concerned about potential conflicts of interest with other people potentially able to overhear telephone calls, and the absence of recorded lines.
The Autorité des marchés financiers, the French regulator, said that technical solutions already existed to allow for working remotely. “However the swift, broad scale rollout of such solutions may be challenging and the AMF will take this into account during its supervisory activities,” it added.