Posts tagged counter measures

Europe exchanges’ pre-trade safety seen at risk

By Jane Baird

LONDON, May 7 (Reuters) – The safety systems of Europe’s stock exchanges are at risk of being eroded by market pressures and experts say regulators need to act to head off a computer-driven tailspin like the one that hit U.S. stocks on Thursday.

Europe’s big exchanges are still less vulnerable than their U.S counterparts to error-induced convulsions similar to the Dow Jones Industrial Average’s nearly 700 point drop in 10 minutes, but a race for speed is pressuring them to weaken their safety controls

“European exchanges are being forced by commercial pressures to slim down their platforms and show faster and faster trade times, which means they are at risk of eventually cutting off their circuit-breakers. Meanwhile, there are no regulatory counter-measures to pre-empt it” said Frederic Ponzo, a managing partner at Greyspark Partners.

The European Union is reviewing its share trading rules, known as markets in financial instruments directive (MiFID).

The bloc’s securities regulators opened a probe in April into whether MiFID should be changed to include regulation of new technology such as high-frequency trading.

The London Stock Exchange has circuit breakers built into its electronic order book that stop trading if a price jumps more than a certain percentage in a trade.

That limit, which depends on the typical liquidity and volatility of a particular stock, is around 3 percent for highly traded stocks, an LSE spokesman said.

The stock then goes into an auction for around five minutes, giving market participants time to spot an error.

The SIX Swiss Exchange has circuit-breakers for excessive price moves — either from one trade to the next or for a series of trades over a period such as 10 seconds — that halt all trading for a few minutes.

The exchange furthermore has an active policy of then contacting the member firms involved to check on the trades.

“We have risk management to catch both manual and electronic errors,” said Chief Executive Christian Katz.

LEGACY VS SPEED

European exchanges have a longer history of trading electronically than U.S. markets and a legacy of implementing safeguards, while the newer U.S. systems are trimmed down for faster trading, Ponzo said.

“In Europe, the technology and risk management approach in place would have spotted these (erroneous) transactions or sent an alert to the financial institution involved,” said Axel Pierron, senior analyst at research and consulting firm Celent.

“The surge to reduce latency on execution platforms in the United States has pushed them toward removing some of the safety features,” Pierron said.

But increasing demand for instantaneous trading is now driving Europe’s trading platforms also to cut trade turnaround time, known as latency.

While exchanges account for the majority of trading, high-frequency trading and rival multilateral trading facilities (MTFs) have rapidly grown to 30-40 percent in recent years.

The LSE spokesman said the exchange remains the price formation venue for UK stocks and that prices on MTFs, either directly or indirectly, are pegged to it.

“It is unlikely that this kind of dramatic drop could happen in the UK,” he said.

But Katz said MTFs have big members who trade Swiss stocks and do not trade on the exchange. Even if SIX heads off a major distortion, that does not prevent a problem on an MTF, he said.

“The MTF competition has not necessarily made European markets a safer place,” he added.

The leading MTFs such as Chi-X Europe and BATS are based in London, where the Financial Services Authority (FSA) requires them to employ pre-trade checks and circuit-breakers.

They typically will not accept an order whose price is 20 percent away from the reference price on a primary exchange. But the standards vary from one market to another.

“There is a need for guidelines that are quantified, not just qualitative,” said Greyspark’s Ponzo.

“The MiFID review is an opportunity to create consistent standards across trading platforms,” said Hirander Misra, chief executive of ALGO Technologies and former Chi-X executive.

(Additional reporting by Huw Jones; Editing by Erica Billingham)

((jane.baird@thomsonreuters.com, Reuters Messaging: jane.baird.reuters.com@reuters.net, +442075422471))

Ballistic Missiles As "Carrier-Killers"


China Testing Ballistic Missile ‘Carrier-Killer’ — The Danger Room

Last week, Adm. Robert Willard, the head of U.S. Pacific Command (PACOM), made an alarming, but little-noticed disclosure. China, he told legislators, was “developing and testing a conventional anti-ship ballistic missile based on the DF-21/CSS-5 [medium-range ballistic missile] designed specifically to target aircraft carriers.”

What, exactly, does this mean?

Read more ….

My Comment: The US has also been looking at developing such a weapon system …. but for anti-terrorism purposes. The problem with such a system is that when used the other side will not be able to determine if it is carrying a nuclear payload …. or a conventional one. All countries will assume the worse, and will take counter measures immediately.

If the Chinese are developing such a capability …. and it clearly appears that they are …. they are raising the nuclear threat level to a very dangerous point.

Why Is Gen. Stanley A. McChrystal Positive On Afghanistan?

In a report sent to the White House in September, Gen Stanley McChrystal, who commands US and Nato force in Afghanistan, warned that “increasing Indian influence in Afghanistan is likely to exacerbate regional tensions and encourage Pakistani counter measures.” Photo from DAWN.

U.S. General Offers Upbeat Views on Afghan War — New York Times

ISTANBUL — The senior commander of American and allied forces in Afghanistan offered a guarded but unexpectedly upbeat assessment of the war effort on Thursday, saying that while the situation remained dangerous it was no longer getting worse.

“I still will tell you that I believe the situation in Afghanistan is serious,” said the commander, Gen. Stanley A. McChrystal.

“I do not say now that I think it’s deteriorating,” he added. “And I said that last summer, and I believed that that was correct. I feel differently now. I am not prepared to say that we have turned the corner. So I’m saying that the situation is serious, but I think we have made significant progress in setting the conditions in 2009, and beginning some progress and that we’ll make real progress in 2010.”

Read more ….

More News On Gen. Stanley A. McChrystal’s “Upbeat” Assessment On Afghanistan

McChrystal: Afghan Security Deterioration Over, But No Win Yet — Voice of America
U.S. commander in Afghanistan says situation likely to improve — Washington Post
US war commander sees progress in Afghanistan — Washington Post/AP
U.S. commander sees Afghan progress — Reuters
Gen. McChrystal Says Afghanistan Has Stopped ‘Deteriorating’ — NPR
Afghan security better, says US commander McChrystal — BBC

My Comment: Lets see …. allied casualties are at record levels. The Taliban have shadow governments in each of Afghanistan’s provinces. Afghan forces are not meeting the expectations of US/NATO commanders. Afghan Government is still corrupt. Drug trade growing. NATO partners like Canada and Great Britain are preparing to leave next year.

Hmmmm …. the General must know something that I do not.

U.S. policy confusion on Pakistan and India

jinnah flagWhat is the U.S. policy towards Pakistan and India, and in particular over how to deal with their rivalry over Afghanistan which complicates U.S. efforts to bring stability there? I’ve been trying to find an answer for weeks now amid a raft of contradictory signals and statements coming from different U.S. officials.

First we had the leaked report by General Stanley McChrystal in September suggesting the issue should be handled with caution given Pakistani sensitivities about a big rise in India’s presence in Afghanistan following the fall of the Pakistani-backed Taliban in 2001.

“Indian political and economic influence is increasing in Afghanistan, including significant development efforts and financial investment,” it said. “In addition the current Afghan government is perceived by Islamabad to be pro-Indian. While Indian activities largely benefit the Afghan people, increasing Indian influence in Afghanistan is likely to exacerbate regional tensions and encourage Pakistani counter-measures in Afghanistan or India.”

Then we had a series of reports, most recently here, suggesting Washington might welcome a bigger role for India in Afghanistan – precisely the kind of development that would exacerbate tensions with Pakistan given the current sour mood between New Delhi and Islamabad.

U.S. special envoy Richard Holbrooke toured the region saying President Barack Obama’s administration would welcome better relations between India and Pakistan. But then he was followed by Defense Secretary Robert Gates who, if anything, actually worsened tensions between the two by saying that India might retaliate in the event of a another big attack like the Nov. 2008 assault on Mumbai.

Gates made a similar comment towards the end of last year, when he said al Qaeda and its Islamist allies might try to use an attack to provoke a conflict between Pakistan and India. The problem this time around was the context. Saying this in Washington is one thing; saying it in India is quite different. Pakistan had already been jumpy about Indian intentions after its army chief said the military should be prepared to fight a two-front war against both China and Pakistan. Indian analysts describe those remarks, made at a closed-door seminar, as an aspirational view of the need for military preparedness, rather than any kind of immediate threat; but they went down badly in Pakistan and therefore coloured the way Gates’ remarks were interpreted.

You have to wonder whether Gates had been properly briefed about the context when he talked about Indian losing patience in the event of another big attack, or indeed why someone with such long experience of the region would make what appeared to be a diplomatic gaffe shortly before flying into Pakistan to try to win support there.  Did he, to borrow a word from the now U.S. Secretary of State, ”misspoke”?

 Juan Cole, who has generally been supportive of the Obama administration, was unforgiving, writing on his blog Informed Comment that its policies in Afghanistan and Pakistan were in disarray:

“Secretary of Defense Robert M. Gates’s trip to Pakistan this weekend has in many ways been public relations disaster, and I think it is fair to say that he came away empty-handed with regard to his chief policy goals in Islamabad. Getting Pakistan right is key to President Barack Obama’s policy of escalating the Afghanistan War, and judging by Gates’s visit to Islamabad, Obama is in worse shape on the AfPak front than he is even in Massachusetts. Since he has bet so heavily on Afghanistan and Pakistan, this rocky road could be momentous for his presidency.”

Meanwhile Britain is hosting a conference on Afghanistan this week aiming to flesh out the timetable set by Obama for drawing down troops by 2011 and to convince regional players to cooperate rather than compete over a country which has long been a battleground for proxy wars. But as I wrote in this analysis, anything that might now be achieved in terms of easing tensions between India and Pakistan is likely to come too little, too late to deliver policy results in time for the 2011 deadline.

According to Steve Coll at the New America Foundation, who I quoted in the analysis, Washington’s need to achieve results in Afghanistan by 2011 is at odds with the longer-term clock followed by India and Pakistan. ”My sense is that the administration feels stymied by India’s continued insistence that it does not want any outside help and the frustratingly slow pace by which India and Pakistan are trying (to find a way back to negotiations),” he said. ”The U.S. doesn’t seem to be able to construct a breakthrough.”

The tensions between India and Pakistan complicate the current situation by undermining U.S. efforts to convince the Pakistan Army to turn on Afghan Taliban militants which it may eventually need to counter Indian influence in Afghanistan in the event of a U.S. withdrawal.  Pakistan has also kept the bulk of its forces on the Indian border, limiting its capacity to mobilise troops to fight militants on the Afghan border.  In the short to medium term, India and Pakistan are at odds over how far Taliban fighters should be brought into a process of reconciliation in Afghanistan. And in the long term, both could end up backing opposite sides in any renewed civil war between a weak government in Kabul and Taliban militants active in parts of the countryside. Then of course, both countries have nuclear weapons, so even without Afghanistan, it’s not a place where you would ever want tensions to escalate out of control.

So you would think that after a year in office, the U.S. administration would have a policy on how to deal with relations between India and Pakistan and their roles in Afghanistan. But I’m still looking for it.