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1 Assignment 2 Trading at the Speed of Light: Nasdaq’s Information Challenges Assignment 2 Nicole Sime Info MGMT in Organizations, National University BIM 400 Info MGMT in Organizations Professor Harjit Singh February 11, 2024

2 Assignment 2 Trading at the Speed of Light: Nasdaq’s Information Challenges “Financial traders are in a race to make transactions ever faster. In today's high-tech exchanges, firms can execute more than 100,000 trades in a second for a single customer” (Buchanan, 2015). In the case study, “Trading at the Speed of Light: Nasdaq’s Information Challenges” it talks about Every day, the world's largest "floorless" market processes hundreds of millions of deals. Buys and sales occur so quickly that each transaction must be time-stamped to the millisecond. Nasdaq, founded in 2000, is primarily a technology business that competes effectively with the historic New York Stock Exchange (NYSE) on the basis of its astounding trading speed. When most people think of an exchange, they see the NYSE's massive edifice on Wall Street, with loud-mouthed dealers yelling orders, speeding stock tickers, and massive LCD screens filled with charts, figures, and ticker symbols. In truth, most transactions take place in data centers rather in neoclassical buildings. Speed is critical, and Nasdaq technology can process 1 million messages per second (Wallace, 2020). It’s so important that several major traders, like as Goldman Sachs, paid Nasdaq for the opportunity of installing their own server in Nasdaq’s data center, only to avoid the minor communication delay from Goldman headquarters. A trader's servers can identify delays immediately and au’omatically examine other exchanges to see if the deal can be redirected. It then goes on to say, with traders placing orders from all across the world, Nasdaq must strive for even quicker response times. The corporation must also figure out how to appropriately determine the sequence in which those buy and sell orders are sent, so that proximity to Nasdaq's data center no longer provides an unfair advantage (Wallace, 2020). Computer experts at Stanford and Google are developing a newer technique that can measure time down to 100 billionths of a second, which is far quicker than anything currently available. This new

3 Assignment 2 technology enables each computer to add a timestamp to each order as it is placed, allowing orders that come out of sequence due to distance to be restructured into the right sequence. Nasdaq's new synchronization technology also enables the corporation to pursue new enterprises outside of securities trading, such as "pop-up electronic markets." These provide buyers and sellers with possibilities to engage in short-term marketplaces that can take place anywhere in the globe and last for a short period of time. Major athletic events, such as the World Cup and the Super Bowl, are examples. Balaji Prabhakar, one of the new technology's creators, mentioned that these pop-up marketplaces will require tickets, lodging, and transportation. Think of an electronic market similar to an electronic flea market managed by Nasdaq software." (Wallace, 2020). How has Nasdaq's business benefited from the use of information systems? NASDAQ has tremendously profited from the usage of information technologies in various ways: Efficiency and speed: NASDAQ's information technologies allow it to execute transactions and update prices in real time. This has greatly improved the speed and efficiency of trading activities. Transparency: Information systems ensure transparency by making trading data available to all market participants. This has enhanced trust and confidence in the market. Global Reach: Information technology have enabled NASDAQ to interact with markets and traders all around the world, increasing its reach and impact. Innovation: Information systems have enabled NASDAQ to launch new goods and services, including as computerized trading platforms. What risks do information systems pose for Nasdaq's business? While information technology bring various benefits, they also represent a number of threats to the NASDAQ business. Cybersecurity: The threat of cyberattacks is a serious worry. A successful assault might interrupt trade, cause financial losses, and harm NASDAQ's image. System Failures: Any outage

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4 Assignment 2 or malfunction in information systems can create severe disruptions to trade operations. Data Privacy: Handling huge amounts of sensitive financial data increases the potential of data breaches, which can result in legal and reputational damage. Regulatory Compliance: NASDAQ must guarantee that its systems adhere to numerous financial rules, which may be difficult and costly. What are the key characteristics of this information, and how do Nasdaq customers use this information to create value? NASDAQ systems manage a variety of information, including: Trading data provides information on buy and sell orders, prices, volumes, and timestamps. Market data comprises overall market movements, indexes, and economic indicators. Company information comprises financial reports, news announcements, and other pertinent information regarding publicly traded corporations. The main features of this information are: Timeliness: All information is updated in real time. Accuracy: The information is extremely accurate because it directly influences trading decisions. Relevance: The information is useful for traders, investors, and analysts. NASDAQ clients utilize this data to make educated trading decisions, study market trends, and evaluate business performance. This knowledge is useful since it can lead to beneficial investing decisions. What does the example of Goldman Sachs paying to locate its server in the Nasdaq data center say about the relationship between information systems and physical operations? The example of Goldman Sachs paying to have its server located in the NASDAQ data center exemplifies the relationship between information technology and physical activities. It demonstrates that: Proximity Matters: Even in the digital era, a server's physical location might effect transaction performance. Being closer to the source of information might provide you a competitive advantage. Infrastructure Investment: Companies are ready to make significant

5 Assignment 2 investments in infrastructure to acquire a competitive advantage in information processing and access. Information is valuable. The willingness to pay for server location demonstrates the importance of quick and reliable data in the finance business. In conclusion, some say that high-frequency trading makes markets more efficient and egalitarian, giving major players no advantage. While Nasdaq and other exchanges fight for the expanding number of algo-traders, many are concerned that the sheer technical speed poses significant concerns. When markets fell 9% on one afternoon in May 2010, some speculated that a careless algo-trader had unwittingly triggered the disaster (Wallace, 2020). Though the true reason of that roller-coaster flash crash was never determined, such programmed trades might easily be to blame.

6 Assignment 2 Reference: Buchanan, M. (2015). Physics in finance: Trading at the speed of light. Nature , 518 (7538), 161– 163. https://doi.org/10.1038/518161a Wallace, P. (2020). Introduction to Information Systems (4th ed.). Pearson Education (US). https://online.vitalsource.com/books/9780135868126

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