flameout

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About eight months ago, Australian low-latency networking equipment provider Zeptonics, made a hit at SIFMA Tech Leadership Forum and Expo with the announcement of its new 50-port low-latency Layer-1 ZeptoLink networking device.

Everything seemed rosy for the trading appliance start-up until the Australian Federal Court ruled on a tort brought against Zeptonics by fellow-Australian low-latency trading and networking equipment provider Zomojo.

In its decision issued this week, the Federal Court of Australia has ordered Zeptonics cease all use of its ZeptoLink, Zepto Access KRX, ZeptoNIC and ZeptoMatch offerings and turn them over to Zomojo.

All existing third-parties using or testing vendor’s ZeptoLink and ZeptoAccess offerings, which include about half of the top global proprietary-trading firms, also are under order by the Australian court “to not facilitate directly or indirectly their use.”

The basis of Zomojo’s tort is that while Zeptonics founder Matt Hurd was a co-managing director and head of the its R&D team between 2005 to early 2011, he used knowledge gained from his position to develop and market high-speed trading devices beginning in 2010 when he founded Zeptonics. Other complaints made in the same lawsuit include breach of fiduciary responsibility to disclose business opportunities presented to Zomojo and soliciting Zomojo employees during their restraint periods.

According to an official statement from Zeptonics, its products are the result of starting from a clean slate and two years of “inventiveness and hard work of a talented team of more than twenty people” and millions of dollars in investment.

However, the company will comply with the court order, but believes that it has “substantial ground for appeal,” the statement adds.

 

 

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Tired of explaining to friends and family that  many of Wall Street’s latest fiascos aren’t due to conspiracies but to technology?

Wait a few more months and take them to see the market structure documentary that Arbitrage Pictures plans to release next Spring.

The movie, Ghost Exchange, examines what happens what happens when trading speeds and complexity outpace regulatory oversight and understanding.

The filmmakers interview a number of well-known industry members and experts to find whether the widespread adoption of dark pools, high-frequency trading and trading algorithms has placed Wall Street, and the rest of the global markets, at the whims of “the ghost in the machine” that now appears to run the markets.

Check out the online trailer here.

 

 

 

 

 

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The fallout from Peregrine Financial Group continues as US Commodity Futures Trading Commission (CFTC) chairman Gary Gensler testifies before the US Senate Committee on Agriculture this morning, where he identified the regulator’s plan to improve the protection futures commission merchant (FCM) client funds.

According to his published statement, available on the regulator’s website, the CFTC approved a set of rules proposed by the National Futures Association (NFA) regarding improved controls for segregated and Part 30 secured accounts.

The Chairman also would like to increase transparency by letting self-regulatory organizations (SROs) and the CFTC electronically access FCM bank and custodial accounts without prior FCM permission as well as having the FCM provide clients with details on where and in what fashion their assets are held. He also suggests that the CFTC should consider enhancing the controls on how FCMs handle customer accounts and creating new rules on SRO’s requirements for conducting examinations and audits.

These suggestions might prevent future Peregrine and MF Globals from happening, but what are the chances that the regulator would be able to capitalize on these changes? Chairman Gensler points this out in his testimony.

 

The Commission’s limited resources have historically not allowed for direct oversight of FCMs.  There are 46 staff members, including 35 audit staff, on the CFTC’s examinations team who oversees four SROs, which in turn have responsibilities for more than 1,000 entities.  On top of the current lack of staff for examinations, our responsibilities are expanding to include reviews of many new market participants.  For instance, there are currently 115 FCMs, and staff estimates a similar number of swap dealers will ultimately register.  More frequent and in-depth examinations are necessary to assure the public that firms have adequate capital, as well as systems and procedures in place to protect customer money.  Greater coverage by regulators – like having more cops on a beat – will improve integrity and heighten the deterrent effect of the review process.

 

Is it me, or does this situation spell  “systemic risk” in 18-point bold lettering?

It would be nice to view Peregrine and MF Global as individual incidents, but they cannot. These are the results of years of poor regulatory oversight of the industry. Or to quote the Wizard of Omaha Warren Buffet, “It’s only when the tide goes out that we learn who has been swimming naked.”

I bet in the weeks and months ahead we will see more damp, flabby backsides flapping in the wind.

Don’t lay the blame at the feet of the CFTC as some do. The CFTC staff is among the hardest working professionals in the regulatory space. It’s weakness, along with its sibling regulator US Securities and Exchange Commission (SEC), is that it is not self-funded or partly self-funded.

Every year the US market regulators traipse up to Capitol Hill and pitch their budgetary needs and that’s when politics really where politics truly makes an unholy mess of it. As a result, the regulators tend to get just enough funding to cover some basic necessities but not near enough to keep up with the rapid evolution of the market.

By keeping the regulators on a short fiscal leash, the US Congress allows firms to continue to swim naked at the peril of the entire financial market.

 

 

 

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The violent storms that rocked the mid-Atlantic states last night and early this morning with the second punch in a rapid one-two-punch that affected East Coast users of Amazon’s Elastic Compute Cloud (EC2) and related offerings on the eve of the unofficial July 4th weekend.

The Amazon facility that houses its Availability Zone for the US-East-1 region lost power just before midnight Friday night. Amazon staff managed to restore power within a matter of minutes and recovered roughly half of the affected EC2 instances and a third of the affected Elastic Block Storage (EBS) volumes within the first three hours. Employees continue their recovery efforts and warn that some EBS volumes may have inconsistent data due to the power outage, according to a posting on Amazon Web Services’ Service Health Dashboard.

Friday morning EC2 users also experienced connectivity issues with the same Availability Zone as multiple network devices in the same availability zone suffered routing table exhaustion.

“Some of the devices in this [Availability Zone] had not been reconfigured to handle the increase in required routing table space, and this exceeded the allocated capacity on those devices,” according to another posting on Amazon Web Services’ Service Health Dashboard. “This caused excess load on the router control processor which in turn caused high levels of packet loss. When this high level of packet loss occurred, EC2 instances and EBS volumes connected to those devices lost network connectivity. Once we discovered the root cause, the affected network devices were reconfigured to mitigate this problem and connectivity to impacted instances and volumes was restored. We are currently putting better monitoring in place across all of our network devices globally to prevent this from happening again.”

All of this comes on the heels of a similar outage suffered by the same facility on June 18.

 

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In a private agreement announced today, officials from Atrias Group, formerly known as Pipeline Financial Group, say that execution management system (EMS) provider Portware has agreed to purchase its Alpha Pro trading algorithmic engine in deal slated to close sometime this quarter.

“Aritas’ technology assets are highly complementary and add advanced artificial intelligence and commission optimization tools to Portware’s core offerings,” said Portware CEO Alfred Eskandar in a prepared comment.

This is definitely a good deal for Portware as it adds new pre-trade bells-and-whistles to its trading platform.

For Atrias, however, it leaves the firm with its broker-dealer and block-market operations, the core businesses that proved difficult for the firm’s former management.

When ITG and Liquidnet veteran Jay Biancamano came on board as executive chairman last November, he faced a monumental task of turning around the business. A short two months later, the company lost its tarnished name and gained its new Atrias brand. It also turned its attention to further developing its Alpha Pro platform.

With its sale, what is left for Atrias?

UPDATE:

According to reporting from Traders Magazine, it is to shut up shop and go to work for the company that just purchased your assets.

 

 

 

 

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