The recent outages at brokers have revealed a deep vulnerability in the digital backbone of the financial industry, according to Kris Mullins, Chief Marketing Officer of Capital Max.
“These are more than just technical glitches, they are clear signs that much of the infrastructure supporting our financial markets is archaic and inadequate to support modern trading practices,” he told Traders Magazine.
“It’s a stark reminder of how much further the fintech revolution has advanced than its traditional frameworks, and a comprehensive overhaul is long overdue,” he added.
Mullins said this goes beyond adding more servers – it’s about rethinking the entire digital architecture of trading platforms to ensure resilience and robustness in an era where milliseconds can mean millions.
“Brokerages will need to come around to the idea that their technological infrastructure is as important as their financial expertise,” he stressed.
He believes that the largest reason behind these outages is the exponential growth in retail trading, largely driven by zero commission trades and user friendly apps.
“This precisely is what has led to a record stress on brokerage systems that were initially equipped for managing just a fraction of the current transaction volume,” he commented.
During the recent market sell-off, for instance, platforms such as Charles Schwab and Fidelity experienced technical problems with tens of thousands of trades being executed, he added.
Mullins further said that Algorithmic Trading and High Frequency Trades can put an “immense strain” on trading platforms.
“When market volatility spikes, the algorithms kick into overdrive, leading to system bottlenecks and failures. Unfortunately, many existing systems are behind the curve when it comes to this technical requirement of modern trading,” he said.
He added that in the backdrop of these outages, cybersecurity threats loom large: “As they scramble to deploy more advanced security controls, platforms often run into operational hiccups.”
“Ensuring data integrity and protecting against breaches can sometimes necessitate taking systems offline temporarily, adding to the perception of instability,” Mullins said.
He also added that while firms have poured resources into front end innovations like mobile apps and user friendly interfaces, the back end systems have not received the same level of attention and investment: “This disparity creates a bottleneck during peak trading times.”
Jeff Sekinger, CEO & Founder at Nurp LLC, said that these outages occurred at a critical time when investors needed immediate access to manage their portfolios, causing frustration and potential financial losses for many users.
In general, this points to the need to build more robust IT infrastructure, he argued.
“The world is becoming more and more digital; more and more online-based. Especially during times of heightened market volatility, traders need to be able to rely on the online portals they are using to effectively manage their portfolios,” he said.
According to Steve Sanders, Executive Vice President of Marketing & Product Development at Interactive Brokers, added what’s become obvious from this week is that any company can experience technical bumps and needs to focus on redundancy.
“The lesson here is that there is clearly the need for system redundancy and building capacity to far exceed normal business demand,” he said.
Mark Hirsch, Personal Injury Lawyer at Templer & Hirsch, said that not only is it wise for brokerage companies to invest in their technology stacks, but it’s also necessary.
The financial world is increasingly going digital, and companies that need to keep up with technological changes risk falling behind, he said.
“Clients today expect services that work well and keep them from slowing down, and strong technology can provide these services, he added.
Hirsch said that investing in technology can also improve security, which is very important in banking services.
“As cyber threats get smarter, having the most up-to-date security steps can keep your clients’ private information safe and your trust,” he said.
Finally, brokerage companies should prioritize investing in their technology stacks, Hirsch added.
“This improves service delivery and customer happiness, keeps things safe, and gives them an edge over their competitors,” he said.
From an investor’s perspective, diversification is the best way to protect themselves from these kinds of events.
When brokerages go down, buyers are apprehensive, Hirsch said, adding that these problems can cost investors a lot of money because they need help to make deals at crucial times.
“To lower your risk, spread your assets across several brokerages. Setting up stop-loss orders can also automatically limit costs during unplanned downtime,” Hirsch said.
“Monitoring brokerages and choosing ones with strong and stable technical infrastructures is also important,” he added.
“Technical outages can happen anytime, so you can better protect your finances by proactively spreading your risk,” he said.
Sekinger agreed, saying that traders could consider holding accounts across multiple brokerages: “Having more options can help safeguard against any single broker experiencing major technical issues.”
