Largest Worldwide IP Outage Ever: A Mix of Reactions from the Financial Sector

Starting July 19, 2024, Fazzaco received reports from several FX brokers in Australia, the UK, and many other regions about issues logging in their systems. Initially, we believed this was an isolated event arising from some brokerage software platform within the online trading community. However, as the event unfolded, it became apparent that computers worldwide, from Australia to Asia, Europe, and the Americas, were experiencing system crashes, blue screens, or recovery interfaces one after another due to the widespread use of Microsoft Windows.

Unlike typical circumstances where a quick reboot will do the job just fine, this crash was not an isolated incident as mentioned earlier. It impacted multiple industries globally. According to Microsoft, this outage, caused by an abnormal update distributed by its U.S.-based cybersecurity company CrowdStrike, affected at least 8.5 million devices and is now known as the largest worldwide IT outage in history.

Forex Brokers and Traders

The scale of this IT outage was unprecedented, affecting all major economies except China. In addition to airports, amusement parks, and public transport systems, banks and brokers also struggled to provide normal services. Fazzaco learned that a Forex.com trader reported receiving an email on July 19 stating that due to the IT outage caused by CrowdStrike, his positions were forcibly closed out at the market average price. Other traders reported on July 20 that while they could log in their accounts and MT4, they were unable to access MT5.

Traders unable to execute normal transactions took to the internet to criticize brokers, fearing potential fund losses. In response, brokers began informing traders of the status quo through various ways. Brokers such as IC Markets, LMAX, and CMC posted messages on their websites stating that their systems were experiencing issues due to a global network problem, which might affect normal trading.

Stock Market Reaction

CrowdStrike's stock plunged over 11% following the news, despite CEO George Kurtz releasing a statement that said, "This is not a security incident or cyberattack. The issue has been identified, isolated and a fix has been deployed."

The stock market closed on July 20, with CrowdStrike down 11.1% to $304.96. However, the company's closest competitors gained from this sell-off, with SentinelOne up 7.9% to $21.72 and Palo Alto rising 2.2% to $330.89. US indices were affected by the IT outage, with the S&P 500 and tech-heavy Nasdaq registering their worst week since April 2024, while the Dow continued its streak of hitting all-time closing highs through the week.

The small-cap Russell 2000 index, which has benefited from recent trends of investors moving away from mega-caps, declined modestly. The CBOE Market Volatility Index (VIX), a benchmark for investor anxiety, rose to its highest level since its record high in late April.

Comments from the Fintech Industry

Alex Reddish, Managing Director at Tribe Payments, highlighted that the frequency of such failures is increasing, emphasizing the urgent need for improved technology regulation. "We are now in a period where we have seen large institutional payment rails fail more frequently than ever before." Additionally, he stressed the importance of looking beyond payment infrastructure to ensure ubiquity, security, and resilience.

"Why allow companies to maintain and deliver the same services when they're not providing credibility or taking responsibility for their role in the ecosystem?" he added.

Regulatory Scrutiny of Software Vendors

The IT outage underscored the risks associated with consolidation in the tech industry. Analysts have pointed out that the concentration of power among a few major players poses considerable risks, as these companies hold significant influence over the industry. This incident, with its broad impact, has drawn attention to these vulnerabilities and may prompt regulators to scrutinize the ecosystem more closely to address potential weaknesses.

Citi analysts anticipate that the severity of the outage and its economic disruption will lead to more vigorous debates about the dangers of vendor consolidation, particularly regarding systemic risks in the IT landscape and cybersecurity. The incident is likely to fuel discussions about the limits of such consolidation and its implications for the broader industry.