Ask any fund manager whether they have a disaster recovery plan and they'll hand you a thick binder within seconds. Ask whether that plan covers a rogue algorithm that decides to buy three billion dollars of the same futures contract in forty-five seconds, and watch their face change colour. This question matters enormously because the failure modes are completely different — and the consequences are not.

Traditional DR planning was born in a world of physical disasters: server rooms flooding, power grids failing, staff unable to reach the office. Those scenarios share a common shape — things stop working, you restore them, you resume. An algorithm runaway is the opposite. Nothing has failed. Everything is working perfectly. The system is just doing something catastrophically wrong at machine speed, and every millisecond you hesitate costs real money.

CONCEPTAlgorithm runaway events are operational disasters where the system functions perfectly but behaves catastrophically — a fundamentally different failure class.
WARNINGA DR plan that requires a committee approval call before halting trading is not a plan — it is a post-mortem waiting to happen.
KEY IDEARunaway circuit breakers must be pre-authorised, automated, and tested quarterly — not documented once and filed away.

Think of it like a runaway tram. Your disaster plan for a broken-down tram is solid: call maintenance, reroute passengers, wait. But a tram accelerating out of control needs someone to pull the emergency brake in the next three seconds — not start a phone tree. The difference between those two situations is the difference between a DR plan that works and one that looks great on paper while your portfolio burns.

Damage vs Response Time Time to Respond (minutes) 0 5 10 15 Estimated Loss $0 $1M $5M Runaway algo Traditional DR Action window

So how do you actually fix this? The answer starts with treating algorithm runaway as its own named risk class inside your operational risk framework — separate from cyber, separate from infrastructure failure, separate from market risk. ASIC's business continuity guidance already expects funds to identify material operational risks specific to their business model; algo runaway absolutely qualifies. Once it's named, you can build around it properly: pre-authorised kill-switch authority delegated to a named individual on each desk, automated position-limit circuit breakers tested on a quarterly schedule, and a documented escalation path measured in seconds rather than minutes. For deeper grounding, the mechanics of circuit breakers in trading systems are worth understanding alongside the broader context of algorithmic trading operational risk, and ASIC's published expectations on operational risk management for financial firms give you the regulatory scaffolding to hang it all on.

Pull out your DR plan today and search it for the word "algorithm". If you get zero results, you have your answer — and your project for this month.

This content is for educational purposes only and does not constitute financial product advice. Past performance is not indicative of future results. Profit Logic Ltd (ACN 688 669 936) accepts no responsibility for errors or omissions in this content or anywhere on this website. Always seek advice from a licensed financial adviser before making investment decisions.