Financial Firms Say Decentralized Systems More Secure

Computerworld - Washington—Decentralized systems, such as those used by electronic communications networks (ECN) to trade securities, are a good model for protecting computer systems from catastrophes such as the Sept. 11 terrorist attacks, financial executives told a U.S. House subcommittee in late December.

"Currently, we have a very high centralization" in security trading, said Kim Bang, president of Bloomberg Tradebook LLC, a New York-based electronic brokerage. "I think it would behoove the industry to have more than one hub. And ECN, certainly, is a venue [that's] well suited."

Appearing before the Subcommittee on Commerce, Trade and Consumer Protection, Bang and other executives testified on the impact that the terrorist attacks have had on the communications infrastructure.

ECNs bring security traders together without a middleman; buyers and sellers can meet electronically through private networks that can be located anywhere. Increased use of decentralized systems "could help in the future to absorb shocks," said Joel Steinmetz, senior vice president at New York-based Instinet Corp., which operates an ECN.

Internet traffic went uninterrupted after the terrorist attacks on the U.S., and the Internet-like structure of ECNs drew the attention of the subcommittee.

"An ECN is not unlike the Internet in that it provides a platform that allows perfect strangers to enter from anywhere and meet in an anonymous environment," said committee Chairman Rep. Clifford Stearns (R-Fla.).

A problem that affected Instinet and other businesses after Sept. 11 was the destruction of Verizon Communications' telecommunications facilities in lower Manhattan, which knocked out phone service.

Catherine Kinney, a vice president at New York Stock Exchange Inc., said debate should focus on the issue of telecommunications connectivity "and ensuring that in the future there are alternatives and contingencies well planned for."

Steven Randich, CIO at Nasdaq Stock Market Inc. in Washington, said, "It's critical to understand that disasters such as these are not averted by hardening a single point of failure. They are avoided by having resilience built into the network and backup connections and backup vendors. This is the key [IT infrastructure] lesson from this tragedy."