Case Study Questions

Case 1—Nasdaq OMX: Trading at the Speed of Light

1. How has Nasdaq’s business benefited from the use of information systems?
Nasdaq’s business competes against bigger company with its high speed trading speed.
This company uses information system to drive prices down. While they thrive for
quite some time in the beginning, it doesn’t take too long for other business
competitors to come up against them. Nasdaq then sells their technology that is based
on algorithms to start their own exchanges.

2. What risks do information systems pose for Nasdaq OMX’s business?

Based on the answer of the first question, Nasdaq relies on algorithmic trading
software to compete against other algotraders. The usage of this high-speed software
arises various risks. As the trading has become high speed, it has become more
difficult for people to track the trading carefully. As it has strong linkage between
financial markets, the software can send shocks between one market to another, just
like the example mentioned in the slide. One small mistake form one algotraders can
send shocks to other algotraders in a high frequency that is hard to prevent.

3. This chapter discusses the value of information. What types of information are
handled through Nasdaq systems, what are the key characteristics of this
information, and how do Nasdaq customers use this information to create value?
As Nasdaq uses algorithmic trading software, several types of information are
handled through the system. The information handled through the systems are
valuable, as the users are able to increase their stocks from them. The information
constantly changes, as like the changes in stock market. As algotrading happens quite
fast, the change in information, stocks and many others also happens quite fast. The
customers are able to use the information to think about their next or future steps to
gain more value.

4. 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 relationship between them is that they both go hand in hand. Information system
is an automated system that process data representing information for the user. When
the Goldman Sachs paid to locate its server, both the information system and physical
operations play their roles.
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