Nasdaq opted for caution over speed in restoring trade
Outage stands as among the most serious in recent failures to hit the US securities business
Tthe Nasdaq MarketSite in New York’s Times Square. All trading on Nasdaq, the second-biggest US stock exchange, was halted yesterday shortly after midday due to a technical problem, the exchange said. Photograph: Lucas Jackson/Reuters
Thirty minutes into the crippling outage that hobbled the Nasdaq stock market yesterday afternoon, stopping all trading in $5.9 trillion worth of US equities, exchange officials had the problem fixed.
It was another two and a half hours, however, before they were ready to flip the switch and turn the all-electronic market back on.
Most of the 191 minutes that the exchange was dark was spent in sometimes frantic conversation with scores of banks, brokers, investment companies and rival exchanges who wanted Nasdaq’s assurance that a restoration of trading would be orderly and would not lead to panic.
“We had to make sure all the exchanges were connected to us successfully and if the firms on the outside could get in,” said one Nasdaq official who spoke on condition of anonymity.
Meanwhile, banks’ trading desks were cautioning Nasdaq, operated by Nasdaq OMX Group Inc, not to rush to reopen, fearing that a restart full of technical errors would only sap more confidence from rattled markets, according to three sources at brokerages and banks who declined to be identified.
In the end, the reopening of trading did go relatively well.
Transactions first restarted at 3pm EDT (1900 GMT) in a single microcap stock, Atlantic American Corp, a test case picked for its front-of-the-alphabet ticker. Twenty-five minutes later, the rest of the market opened, and, according to a Nasdaq statement, the trading day finished in normal course.
Shares of Nasdaq itself, which initially fell by more than 5 per cent when trading resumed, recovered some of their lost ground to close the day 3.4 per cent lower. The widely tracked Nasdaq Composite Index gained nearly 1.1 per cent.
While the worst case scenarios may have been averted, the outage still stands as among the most serious in a series of recent technological failures to hit the US securities business, including a software issue at the Chicago Board Options Exchange this spring that delayed the start of trading there for half a day.
It was also the latest black eye for Nasdaq, which in May agreed to pay $10 million, the largest penalty ever against a stock exchange, to settle SEC civil charges over its mishandling of Facebook’s initial public offering in 2012.
Late yesterday Nasdaq identified the problem as a “connectivity issue between an exchange participant and the SIP”, or Securities Information Processor - essentially the system that receives all traffic on quotes and orders for stocks on the exchange.
This problem “led to degradation in the ability of the SIP to disseminate consolidated quotes and trades”, Nasdaq said in a statement. “The cause of the issue has been identified and addressed.”
Whether it has been addressed to the satisfaction of regulators is another question. US Securities and Exchange Commission chair Mary Jo White called for a meeting of Wall Street leaders to help insure the “continuous and orderly” functioning of securities markets.
The incident "should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants”. she said.
Yesterday’s outage could well give Ms White fodder to press ahead with new rules, proposed in March, that would hold exchanges, clearing agencies and certain “dark pool” trading venues more accountable for taking steps to prevent potential systems disruptions.