Outlook Outage and Letters of Free Funds: What Kept Moving

On Thursday, November 12, people across the Americas opened Outlook and couldn't reach their mailboxes. Microsoft opened incident EX1550543 for Exchange Online, then a broader one for Microsoft 365, and said the disruption might be worldwide. Its updates described servers failing their health checks and dropping out of service, which left the remaining servers to carry the load. Teams, SharePoint, and Copilot features that depend on Exchange had trouble too. Recovery was still under way Friday morning, with Microsoft reporting improvement in "delayed email processing." The company said it had no evidence of malicious activity and promised a post-incident report with the root cause. It hasn't said how many users were affected.

We aren't going to pile on. Running a service at that scale is hard, and every provider has a bad day, us included. But the outage did show something about the Letter of Free Funds that's easy to miss on a normal day: at many firms, a Regulation T control runs through somebody's inbox.

What a Mail Outage Does to a Letter of Free Funds

When an executing broker delivers a purchased security to another broker-dealer before the customer has paid, Regulation T freezes the cash account for 90 days. The exception in 12 CFR 220.8(c)(2)(ii) covers a security delivered to a cash account that holds enough funds to pay for it, and the executing broker may rely on the other firm's written statement that the funds are there. That statement is the Letter of Free Funds.

The letter is a round trip. The executing broker asks, the receiving firm checks the account, and the answer comes back in writing. If either leg travels by email, a mail outage breaks it in one of two places:

Your mail is down. The request never leaves, and you can't see the answers that came in before the outage.
Your counterparty's mail is down. Your request goes out and sits in a queue. Nobody on the other side knows it exists.

The second case is the one you can't fix. Your own systems are fine, your desk did everything right, and the letter still doesn't come back. Under T+1, trades from Wednesday settled Thursday, in the middle of the outage. A desk waiting on emailed letters that afternoon had three choices: deliver without the written statement, hold the delivery, or get someone on the phone and document it later. None of them is where you want to be when an examiner asks for the letter behind the trade.

There's a records problem too. A letter that lives in a mailbox is unreachable while the mailbox is. The firm still has the record, but it can't produce it until the mail comes back.

What Happened on the FVD Network

Our systems weren't affected. Freefunds Verified Direct (FVD) doesn't depend on Exchange Online, so on Thursday and Friday it ran the way it does on any other day.

When both firms use FVD, which we call in-network, the outage didn't touch the letter at all. The executing broker sends the request from FVD-S. It arrives in the receiving firm's FVD-R queue. The receiving firm verifies the funds and answers there, and the answer lands back against the original request. No part of that round trip passes through a mailbox, on either side. 27 firms are in-network today, and the list is public.

The limit is worth stating plainly. FVD also reaches firms that aren't in-network, and it takes in requests that arrive by email and fax. Those paths have email in them somewhere, so a firm whose mail is down is still hard to reach by those routes. The protection is strongest where both firms are on the network. That's why we keep making introductions when a customer asks us to bring a counterparty in.

The records were reachable the whole time too. Every request, response, and status change sits in FVD's write-once storage with its timestamps, so a firm that needed to show the letter behind Thursday's trade could pull it while Outlook was still down.

One Job, Done Well

We'd be the wrong people to tell you to move off email. We use it all day. Email is a good general tool, and it's shared by every process in the firm, which is the weakness the outage exposed: when it stops, everything that quietly depends on it stops together.

FVD does one specific thing. It carries Letters of Free Funds between broker-dealers and keeps the record. The SEC staff reviewed that same narrow function in its 2003 letter to Loffa, and we've been doing it for more than twenty years. A system with one job has fewer ways to fail, and it keeps running when a general-purpose service has a bad two days.

That cuts both ways, and you should ask us the same question you'd ask Microsoft. If FVD were unavailable, your desk would fall back to email and fax, which is where most firms started. Two independent paths beat one. On November 12, firms on the network had a path that kept working, and firms relying on email alone had none.

What to Check While It's Fresh

Pull Thursday's and Friday's DVP trades and find the letter behind each. Note which ones arrived late, and what the desk did in the meantime.
Read your written procedure for the day a letter can't be obtained. If it says "call the counterparty," check whether anyone recorded the calls.
List the counterparties you exchange the most letters with, and mark which ones still answer by email. Those are the relationships an outage breaks first.
Ask where your LOFF records live. If the answer is a mailbox, they were unreachable for part of two business days.

If you'd like to see which of your counterparties are already in-network, contact Loffa Interactive Group and we'll go through your list with you.

This post is for informational purposes only and does not constitute legal advice. For guidance on specific regulatory obligations, consult your counsel or compliance advisor.