WFE’s Sukumar: “A regulated, transparent market will maintain sanity in a time of turmoil”

• Cyber threats heightened during the pandemic, some even used emails offering tax refund or discount
• FMIs are now focusing on efforts to help spur global growth
• Exchanges have put in place measures to ensure robustness and security even while their staff are working remotely

Financial market infrastructure -- consisting mainly of exchanges, central counterparties (CCPs) and clearing houses -- has proven to be extremely resilient and robust during the novel coronavirus outbreak, and has emerged as one of the bright spots in the prevailing crisis.

Considering the complexities of global financial transactions today, this is no mean feat, and did not happen overnight or by coincidence. Nandini Sukumar, CEO of the World Federation of Exchanges (WFE) explained: “It reflects years of investment into business continuity plans (BCPs), exceptional executional capabilities and a heavy dependence on technology that have eased the situation that we find ourselves in today.”

Market infrastructures comprised some of the most critical components of the financial system that provide external sources of fundraising and finance to the real economy and enterprises that face internal capital and liquidity constraints under the current challenging conditions. They are also a vital trading, hedging and risk mitigation platform for investors, especially in times of increasing market volatility and uncertainty. Hence, they are required by regulators to have robust BCPs, and the capability to execute them well in times of exigency.

Exchanges are also among the first of the financial infrastructures to be automated and digitised with the widespread adoption of electronic trading systems and scripless trading starting in the mid-1980s, and have since been leading technological innovations such as the introduction of low latency and high frequency networks.

Ensuring cyber security

The safe and efficient operation of market infrastructures against the backdrop of record trading volumes during the height of COVID-19 lockdowns and work-from-home measures bears testimony to their operational resilience.

“It is an extraordinary situation to be in, where exchanges and CCPs are run wholly remotely, where everyone would be working from home for three months and more, and are still conducting business as normal,” Sukumar said.

As the market infrastructure world moves entirely electronic, there are also concerns around cyber threats. Cyber threats during the pandemic remain similar to those experienced previously, altered to the extent that they reflect COVID-19 issues and themes.

Sukumar elaborated: “It might be an email purporting to be from the tax authority, HMRC (Her Majesty's Revenue and Customs), and offers members some kind of tax refund or tax discount. There's been a lot of phishing email attacks, donate here for a cure, etc. So, fairly conventional content, but obviously tailored to a COVID-19 theme.”

“During this time of increased market volatility, cyber threats have not gone away and, without care and attention relating to exceptional working procedures, there is the concern that adversaries may identify and exploit new routes into the system to compromise either operations or information systems,” she continued.

The general approach across the exchange and CCP landscape has been to ensure that end-points do not become compromised because that is the biggest concern about remote working, especially around the security of rooted devices -- smartphones, tablets and other mobile devices -- that have restrictions lowered or removed in order to attain privileged control (known as root access) over various subsystems. This is a major concern as it can potentially be the weak link that would inadvertently compromise interconnected core systems or infrastructures.  

In response, WFE’s 250 members globally had to ensure that corporate devices are made available to employees instead. And there has been a lot of focus on ensuring protected virtual private networks (VPNs), establishing access to corporate environments through virtual desktop infrastructure (VDI), reviewing parameter issues and monitoring device telemetry for any abnormalities or spikes, as well as software such as virtual collaboration tools that may have weak security features, and banning those which do not meet standards.

In this regard, the WFE has launched a repository of COVID-19-related public communications from exchanges and CCPs on its website as a resource for the financial community and stakeholders. And many of the exchanges have put in place measures and steps to ensure robustness and security. The pandemic has so far not caused any disruption to access to any of the platforms.

Through its GLEX (global exchange cybersecurity) working group, and in cooperation with other exchanges, CCPs and regulators, WFE is helping members develop their resiliency plans, and “stood up” a number of further cybersecurity measures to safeguard their operations and the economy. GLEX consists mainly of chief information and security officers from member-organisations from around the world and functions at a high level of cyber readiness and resilience.

WFE has also an enterprise risk working group that looks at risk as a holistic measure, and has been busy throughout the crisis, involved not just in assessing and managing cyber risks but also risks associated with “return to work”, economic reopening and the complexities around them.

The two working groups are part of market infrastructures’ front line of defence, planning and thinking about what happens at every distinct phase of the crisis,

Rebuilding the economy

Sukumar said that the WFE is now at the point in the crisis where its members are thinking how they can help rebuild the economy.

“We continue to work on BCP, resilience and robustness and that no one is complacent about it. But the focus now is also very clearly on what exchanges and CCPs can be doing to bring economies back to growth and to support issuers and companies, roll out measures to support them in coming back to the markets,” she said.

She observed that one of the most interesting trends during the crisis while markets remained open is that companies were coming forward and having initial public offerings (IPOs) in April and May. Companies, especially in Asia, have been using the markets to fund and conduct business.

She added: “We contribute to rebuilding the economy through work that we do with companies and investors, stakeholders who use our markets. On a practical level, that is a lot of support given to companies who need to do annual general meetings (AGMs) virtually, and support companies with disclosure requirements.”

The exchanges and the CCPs are spending a lot of time and effort thinking and working to be part of the solution, introducing optimal measures around how to help companies raise capital, and ensuring that investors who are using markets to hedge or mitigate risk can continue to do so. “When there is a regulated, transparent market, you have sanity in a time of turmoil,” she remarked.

And part of the rebuilding includes sustainable development. As an industry focused on this issue for more than a decade before it became mainstream, the WFE came forward to test sustainability principles for exchanges.

“We have a sustainability working group; we do an annual survey of members on their sustainability efforts. The trend has just been growth and members are working on more initiatives, even before the crisis, and now it will continue to grow. The World Bank is warning of many in the world falling into poverty,” she shared.

“We have to support our stakeholders, the companies, investors, as an industry on sustainability, with a wider focus especially at a time of crisis. No one should be left behind,” she stressed.