One year ago the capital markets were just beginning to rotate into a tailspin in the wake of the Lehman Brothers collapse. To mark the anniversary of Lehman’s failure CNBC hosts have been recounting throughout the day the circumstances leading up to the brokerage house’s demise. There remains significant debate about whether the US government should have bailed out Lehman and if so to what extent the damage could have been contained. In the past few days, an endless parade of economists and business analysts have been providing their best “Monday-morning quarterbacking” of the Federal Reserve and Treasury Department’s policy decisions in September 2008. With all of the things that went wrong last September – Mortgage-Backed-Securities, Credit Default Swaps, Subprime Lending, Fannie Mae, Bear Stearns, Northern Rock and of course, Iceland – it is easy to overlook the parts of the financial system that did work throughout the crisis. One of those systems is the B2B integration networks (SWIFTNet and FIX) through which the majority of the world’s securities trades and payment transactions depend upon every day.
B2B Messages Surge with Volatility
People often ask me how the credit crisis and stock market collapse has impacted B2B transaction activity in the financial services sector. The answer is counterintuitive as B2B transaction volumes are at an all time high. Messaging in the securities and payment segments are counter-cyclical. Associated with each securities trade are multiple messages that are exchanged at different points in the lifecycle. For example there are messages to execute the order; confirm/affirm the trade; allocate positions for individual accounts and finally funds transfer for the actual settlement. As market indices drop dramatically, the volume of trading activity increases substantially. Consequently, B2B financial transaction volumes increase significantly on the days of heaviest trading and highest market volatility.
FIX Networks and SWIFTNet both Perform Flawlessly throughout the Crisis
So how did the B2B integration networks perform during the periods of high volatility that followed the collapse of Lehman Brothers? The answer is almost flawlessly. The best data about transaction volumes is available in SWIFT’s annual report for 2008. Not surprisingly, two of SWIFTNet’s top 5 peak days were September 19th and September 30th. Note that SWIFTNet transaction processing peaks often lag market activity by a few days because is the clearing and settlement processes facilitated by SWIFT typically occur 1-5 days after a trade. The situation got more interesting in October as the capital markets continued to decline. SWIFT experienced record-breaking transaction volumes in two back-to-back days October 14th and 15th, each with over 17M messages per day. During these periods of extreme transaction volumes, there were no notable service interruptions to any of the world’s FIX networks or SWIFTNet.
Source: Allvoices.com
One Response to “The Systems that Did Not Fail during the Financial Crisis of 2008”
Too bad there wasn’t a SWIFT FIX for the financial industry…