Another Trading Glitch Underscores The Need For Backup Plans

Earlier this week, the Bank of New York Mellon suffered a system breakdown, which has affected the computer programs running hundreds of mutual and exchange-traded funds.

The glitch has kept the funds from giving investors updates on the values of their holdings, a significant problem in facilitating trades.

The event comes on the back of several other technological issues that have affected markets this year, prompting many to ask how markets can develop a backup plan when technology fails.

A Blow To Financial Companies

Big names in the financial sector were affected by the glitch, as pricing securities is one of their primary business functions. Goldman Sachs Group Inc (NYSE: GS) and Federated Investors Inc (NYSE: FII) were both affected, as funds they sold became difficult to accurately price.

Fund companies are required to provide accurate values to their customers daily, something that was severely hindered by the computer glitch – even a small margin of error could have a large consequence for traders.

Related Link: El-Erian Explains Why This Is Not 1998 Or 2008, Nor The "Crisis Of All Crises"

More Drama To Come

While the turmoil that caused many traders to suffer massive delays created chaos for all involved, the ramifications from the glitch are likely to carry on for weeks, as traders, fund companies and the Bank of New York Mellon work to determine who is responsible for the losses investors suffered if they traded using inaccurate pricing information.

Many expect that the fund companies will be immediately liable for traders' losses.

Tech Failure

This is not the first time that technological failure has created market chaos. The growing reliance on technology in the financial world means that markets are particularly vulnerable to glitches.

Many expect that regulators will eventually require market participants to come up with a backup plan in order to avoid widespread issues when something goes wrong with the computer system.

Image Credit: Public Domain