A Six Sigma process is one in which 99.99966% of the products manufactured are statistically expected to be free of defects (3.4 defects per million). Six Sigma is considered to be world-class quality. So, the question is: what would it take to get the automated trading industry to be at the Six Sigma level?
To properly answer this question, we need to decide how to calculate a software error rate. This is a very interesting question since it is based on standard quality-metric calculations: divide the number of errors by the total number of messages to the bid-ask queue.
To calculate this number, we should take the total number of errors divided by the total number of messages.
Let’s assume that the total number of messages is approximately 300,000,000 messages per day per large exchange. For simplicity sake, let’s also assume there are 5 large exchanges in the world. So, the total number of messages per year might be approximately 378,000,000,000.
From a cursory scan of news items, it appears that from 8 / 1 / 2011 to 7 / 31 / 2012 there were 31 “possible” problems worldwide.
If we assume that a single error contains 10,000 bad messages, then the total number of errors is about 300,000 messages per year.
The calculation of the software error rate is then 300,000 / 378,000,000,000 = 8.20E-07.
The calculation for a Six Sigma process is 3.4 / 1,000,000 = 3.40E-06.
Therefore, based on the simple assumptions, the quality of the automated trading industry exceeds the Six Sigma level.
My question is then, where did I go wrong in my assumptions?
The second question is, could it be that the problem is not the poor quality of trading industry, but rather the sensationalizing of the errors by the media?