Cinnober issues call to IT industry to restore trust

Cinnober’s Augustsson: it’s better for the industry to regulate itself

Exchange technology vendor Cinnober has invited financial IT companies to participate in a new Financial IT Quality Assessment initiative, which is intended to generate a public, industry-wide framework for quality assessment of financial software. The initiative is an attempt to restore shaken confidence in the sector and avoid further regulatory pressure.

The vendor points out that the financial IT industry has been rocked by system outages and glitches in recent years – and it argues that these incidents have eroded public confidence, caused vast losses and attracted attention from regulators. In response, Cinnober is proposing a five-level classification based on an exponential scale of system size, with most national exchanges expected to fall into levels three and four. The goal of the new standard is ostensibly to make it easier for financial institutions to compare the quality of systems and make a decision about which to invest in.

However, behind the stated cause there is also a more pragmatic reason: an increasing concern that regulators will come down heavily on financial market participants if no action is taken. In the Q&A section of the proposal, Cinnober expressly states that FIQA is intended to help the financial industry to regulate itself, thus “avoiding enforced regulation”.

“We strongly believe that the actors in the financial industry are best qualified to establish a common framework for quality assessment,” said Veronica Augustsson, chief executive at Cinnober. “Many other technical sectors, such as the aviation industry, have benefitted from a global quality standard for years. If the financial ecosystem – system vendors, buyers and users – pulls together on this, we will be able to increase transparency on quality and costs, and buyers will be able to ensure system quality matches their requirements. But in the end it’s really about improving the functioning of financial markets and eliminating the repeated system failures that erode confidence.”

At first, the new FIQA working group which Cinnober hopes to convene in London on 8 June will focus on matching for trading systems such as exchanges and MTFs, as well as clearing systems. Later, it plans to extend the project to include back office systems, data dissemination and ultimately broaden out to include system software vendors, regulators and any company that is involved in developing and deploying software for the financial sector.

All metrics in the new standard will be based on cost. The aim is for FIQA to help measure the cost of downtime for a system, the cost of various defects such as incorrect logic, faults in transparency and performance issues, loss of trust and damaged reputation, as well as the expected cost over time. The idea is that when comparing two systems with the same requirements and usage, the system with the lowest expected cost of failures over a period of time would, according to the FIQA framework, have a higher system classification level, indicating that it has higher quality.

The full Cinnober proposal can be seen here.