Rescue remedies

How important is robust disaster recovery for the technology infrastructure of a fund/fund of hedge funds?


This is an extended version of an article appearing in Technology Round Table: challenges ahead for the future.

Disaster recovery jumped up the list of priorities in the wake of terrorist attacks in the early 2000s but has slipped down the list. However, Harrell Smith at Portware believes it should continue to be a priority.

“Regardless of how advanced a firm’s software applications are, the risk of hardware failure remains a critical issue. To address this issue most funds rely on a range of disaster recovery solutions, which are designed to address catastrophic system failures or other unforeseen events that disable a firm’s trading operations,” he advises.

Disaster recovery (DR)solutions also focus on localised hardware failures that interrupt trading, but do not otherwise affect normal operations.

While some DR solutions can restore systems in less than few minutes, even a few seconds of downtime could be disastrous in a high volume trading environment, cautions Smith. “The complexity of trading strategies is such that even a minimal trading system failure represents a threat to a firm’s overall performance,” he adds.

James Parker at  Transaction Network Services believes for many proper DR technology is often ‘left to another day’ due to both cost and lack of impact to day-to-day revenue generating activities, an understandable, but not advisable attitude.

“The question is ‘can you be locked out of key markets/liquidity for periods of time?’ If so, is the time short or lengthy?” he asks.

Past industry disasters offered a cushion to some unprepared companies as exchanges and major buy and sell side entities worked together to determine when was the proper time to return the Market. “If you’re a hedge fund, don’t count on this to happen again,” he warns.

“Major exchanges, electronic communication networks and institutions have invested heavily in disaster recovery. Their goal: to remain operational. Without an executable system hedge funds ignoring DR could find themselves locked out of violently moving markets. Where the economics settle, positive or negative, could mean the very existence of your business,” he comments.

According to  Stuart Sheppard at Netage Solutions, comprehensive DR policies are critical to minimising downtime in the event of a natural disaster or other catastrophic event. “Most software as a service (SaaS) vendors have their own disaster recovery policies and can continue providing service with little to no interruption.,” he says

A plan for on-premise applications requires a fully-redundant infrastructure and periodic data backups that are transported off-site, so they can be restored and deployed from an alternate location, advises Sheppard.

FMO’s Martin Koopman says funds may be best placed  “to pick the maximum amount of data loss acceptable” and build a back up system around this. “Everyone wants ‘real time’ back up but to have a truly real time disaster recovery system with primary, secondary and tertiary back ups across a LAN and WAN is difficult and expensive,” he admits.

He questions if it is worth spending ten of thousands of dollars each year to ensure a few minutes of data is never lost. “Or maybe you are best to admit that you can afford to lose up to five minutes of data and invest that money in another stock picking analyst instead,” he says.

“DR is a non- negotiable for most hedge fund investors based on the risk that unknown occurrences can create,” says  Mary Beth West at Eze Castle Integration.

“In the past, firms only had to plan for statistically predicable events such as hurricanes, fires and floods. Today, firms must consider these plus intentional, difficult to quantify events including cyber crime and denial-of-service attacks; employee sabotage and terrorist events; public infrastructure concerns and protection of human capital,” she says.

Regulatory bodies also place data protection as a non-negotiable for hedge funds. “If the fund is a registered investment advisor with fiduciary responsibilities to clients, a disaster recovery plan is not only the smart strategy, but a requirement of the Securities and Exchange Commission,” she concludes.

“It is mandatory,” states Olivier Vonet at Orange Business Services. “Even if it were not imposed by regulators, this is probably an area hedge funds would impose themselves a backup infrastructure,” he adds.

The reasons are obvious, says Vonet. Lack of liquidity is often the most important risk factor to a hedge fund.

“The reasons for disaster recovery sites are multiple and not just linked to technology failures. They also include terrorism, hygiene and pandemics such as the swine flu. So hedge funds will most likely have disaster recovery sites and also have remote technology solutions for free seating, remote trading and remote risk management monitoring,” he concludes.

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