Fail-Safe Mechanism for Margin Call Failures

Abstract

Major operational and regulatory risks are failure of a margin call in the financial markets, which can lead to loss of finances, system loss, and legal ramifications. These failures are mostly caused by technical issues in the form of the crashing of the system, API, or bad precision of data. The paper proposes the use of a failover system that combines such distributed queuing systems as Kafka and RabbitMQ with an effective layer of data validation to ensure the loss of margin calls in case of system failure. The failover will mean that in case a margin call fails, then it will automatically restart, thus enhancing the reliability and accuracy of the margin call processing, besides reducing the risk in the operations, and making it in line with the regulations, including MiFID II and Dodd-Frank. The results show that such a mechanism plays a significant role in reducing the number of margin call failures, the time of recovery, and the out-of-service duration of the system. Financial institutions can also promote the sustainability of the business by automating the retries process and employing distributed queues to minimize the risk of being accused of violating regulations. This would be very beneficial in the high-frequency trading environment, where a small inconvenience in a minute may lead to enormous losses of money. The failover will be organized to ensure that when the system or API fails, the margin calls will be processed in the best possible manner, which helps in improving the confidence of the investors, regulators, and other stakeholders. In the paper, it has been demonstrated that the sound margin call arrangement needs to be given priority, in a bid to ensure that financial stability and integrity within the market are maintained in a more sophisticated trading environment.