Disaster Recovery for Trading Desks
Disaster recovery planning ensures derivatives trading operations can continue or rapidly resume following disruptive events. Regulatory requirements mandate that firms maintain business continuity plans addressing technology failures, natural disasters, and other operational disruptions. Effective disaster recovery protects customer assets, maintains market integrity, and ensures regulatory compliance.
Definition and Key Concepts
Recovery Objectives
| Objective | Definition | Typical Target |
|---|
| RTO (Recovery Time Objective) | Maximum acceptable downtime | 2-4 hours |
| RPO (Recovery Point Objective) | Maximum acceptable data loss | 0-15 minutes |
| MTPD (Maximum Tolerable Period of Disruption) | Business survival threshold | 24-48 hours |
Disaster Categories
| Category | Examples | Typical Impact |
|---|
| Technology failure | Server crash, network outage | Hours to days |
| Natural disaster | Hurricane, earthquake, flood | Days to weeks |
| Cyber event | Ransomware, data breach | Hours to days |
| Pandemic | COVID-19 type event | Weeks to months |
| Third-party failure | Vendor or exchange outage | Hours to days |
Regulatory Requirements
| Regulator | Requirement |
|---|
| SEC | Rule 17a-4 (recordkeeping continuity) |
| FINRA | Rule 4370 (business continuity plans) |
| CFTC | Regulation 1.11 (risk management program) |
| OCC | Business continuity planning guidance |
How It Works in Practice
Critical Function Identification
Trading desk critical functions:
| Function | Criticality | RTO |
|---|
| Trade execution | Critical | 2 hours |
| Position management | Critical | 2 hours |
| Risk monitoring | Critical | 2 hours |
| Margin management | Critical | 4 hours |
| Settlement processing | High | 8 hours |
| Regulatory reporting | High | 24 hours |
| Customer communication | High | 4 hours |
Recovery Strategies
| Strategy | Description | Cost |
|---|
| Hot site | Fully operational backup | Highest |
| Warm site | Partially configured backup | Medium |
| Cold site | Space only, equipment on demand | Lowest |
| Cloud-based | Virtual infrastructure | Variable |
| Work from home | Distributed operations | Low |
Infrastructure Requirements
Primary site components:
| Component | Redundancy |
|---|
| Trading systems | Active-active |
| Network connectivity | Dual providers |
| Power | Generator + UPS |
| Data storage | Real-time replication |
| Communication | Multiple channels |
Backup site requirements:
| Requirement | Standard |
|---|
| Geographic separation | 50+ miles |
| Capacity | 100% of critical functions |
| Connectivity | Independent network paths |
| Data sync | Real-time or near-real-time |
| Activation time | Within RTO |
Worked Example
Trading Desk Disaster Recovery Plan
Scenario:
Options trading desk with 50 traders, $5B daily volume.
Critical systems inventory:
| System | Function | RTO | RPO |
|---|
| Order management | Trade entry, routing | 1 hour | 0 |
| Execution platform | Order matching | 1 hour | 0 |
| Risk system | Position, Greeks | 2 hours | 15 min |
| Margin calculator | Margin requirements | 4 hours | 1 hour |
| Reporting system | Regulatory, management | 8 hours | 4 hours |
Recovery site configuration:
| Component | Primary Site | Recovery Site |
|---|
| Location | New York | New Jersey (60 miles) |
| Traders | 50 seats | 60 seats |
| Servers | Production | Replicated |
| Network | Primary carrier | Backup carrier |
| Data | Active | Synchronous replication |
Activation triggers:
| Trigger | Criteria | Decision Maker |
|---|
| Site unavailable | Building access denied | Operations head |
| System failure | Primary systems down >1 hour | Technology head |
| Network failure | No connectivity >30 min | Technology head |
| Cyber event | Security breach confirmed | CISO |
Activation sequence:
| Step | Action | Time | Owner |
|---|
| 1 | Declare disaster | T+0 | Management |
| 2 | Activate call tree | T+15 min | Operations |
| 3 | Confirm backup site ready | T+30 min | Technology |
| 4 | Staff travel to backup site | T+1 hour | Trading |
| 5 | System validation | T+2 hours | Technology |
| 6 | Resume trading | T+2.5 hours | Trading |
Communication Plan
Notification sequence:
| Priority | Contact | Method | Timing |
|---|
| 1 | Senior management | Phone, text | Immediate |
| 2 | Key personnel | Call tree | Within 15 min |
| 3 | Regulators | Email, phone | Within 1 hour |
| 4 | Counterparties | Email | Within 2 hours |
| 5 | Customers | Email, website | Within 4 hours |
Regulatory notifications:
| Regulator | Requirement | Deadline |
|---|
| SEC | Material event | Prompt |
| FINRA | Business disruption | Same day |
| Exchanges | Trading interruption | Immediate |
| Clearinghouses | Settlement impact | Immediate |
Risks, Limitations, and Tradeoffs
Recovery Risks
| Risk | Description | Mitigation |
|---|
| Incomplete activation | Not all systems recovered | Comprehensive checklist |
| Data loss | RPO exceeded | Synchronous replication |
| Staff unavailability | Key personnel unreachable | Cross-training, call tree |
| Vendor dependency | Third party not recovered | Vendor BC requirements |
| Testing gaps | Untested scenarios | Regular testing |
Cost-Benefit Tradeoffs
| Investment | Benefit | Cost |
|---|
| Hot site | Fastest recovery | $500K-2M annually |
| Real-time replication | Zero data loss | 20-30% storage premium |
| Generator power | Survive outages | $50K-200K |
| Dual network | Network resilience | 50% connectivity premium |
Common Pitfalls
| Pitfall | Description | Prevention |
|---|
| Outdated plan | Plan not current | Annual review |
| Untested procedures | First test in real disaster | Regular testing |
| Single point of failure | Critical dependency | Redundancy review |
| Communication failure | Cannot reach staff | Multiple channels |
| Documentation gaps | Missing procedures | Comprehensive documentation |
Testing Requirements
Test Types
| Test Type | Frequency | Scope |
|---|
| Tabletop exercise | Quarterly | Walk through scenarios |
| Component test | Monthly | Individual systems |
| Functional test | Semi-annual | End-to-end processes |
| Full failover | Annual | Complete site activation |
Test Scenarios
| Scenario | Focus Area |
|---|
| Data center failure | Site failover |
| Cyber attack | Incident response |
| Key person unavailable | Succession |
| Vendor failure | Alternative providers |
| Market stress | Capacity |
Success Criteria
| Metric | Target |
|---|
| RTO achieved | <2 hours |
| RPO achieved | <15 minutes |
| Staff mobilization | 90% within 2 hours |
| System functionality | 100% critical functions |
| Communication completed | All stakeholders notified |
Checklist and Next Steps
Plan development checklist:
Recovery site checklist:
Testing checklist:
Maintenance checklist:
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