The Haney Group Latest Articles: Server Crash Spurs 3-Hour Nasdaq Halt
Server Crash Spurs 3-Hour Nasdaq Halt as Data Link Lost
The interruption that froze half the U.S. stock market last week began with a routine notice.
“NYSE Arca is currently experiencing an issue processing customer messages on routed orders in Tape C symbol range ‘TACT’ through ‘ZYY.C,’” read an alert for traders received by Bloomberg News at 10:17 a.m. on Aug. 22. “Will advise.”
The brevity of the message belied its significance. Computers at the world’s biggest exchange operators were having difficulty communicating. Within two hours, trading stopped in more than 2,000 U.S. stocks. The three-hour shutdown was the latest in a series of failures to disrupt increasingly complicated markets, prompting the Securities and Exchange Commission to push for rules requiring executives to improve the reliability of their technology.
“Every time we have a glitch like this, it just knocks a little bit more investor confidence off the table,” said Seth Merrin, chief executive officer of Liquidnet Holdings Inc., a private trading platform that competes with the public exchanges, in an interview on Bloomberg Television. “This kind of scenario should have been thought of and practiced between all of the different participants.”
The disruption underscored how quickly the integrity of the U.S. stock market, which has a value of almost $20 trillion, can be threatened as orders to buy and sell shares are matched on more than 50 exchanges and alternative electronic venues. While the outage highlighted what can arise when exchange computers fail, past malfunctions have shown how faulty use of a trading algorithm by a single brokerage or investment firm can roil the entire system.
A fault today halted transactions on Deutsche Boerse AG (DB1)’s Eurex unit, Europe’s largest derivatives market, for about an hour through 9:20 a.m. Frankfurt time.
One result of last week’s shutdown may be the development of a backup data feed to compile and disseminate price quotes, according to Robert Greifeld, the chief executive officer of Nasdaq OMX Group Inc. SEC Chairman Mary Jo White, a former prosecutor, responded to the failure by vowing to finish a rule proposed in March to require exchanges to test the reliability of their technology.
“We have to improve our defensive-driving ability,” Greifeld said on Bloomberg Television Aug. 23. “We have to always be thinking, what can go wrong in the external environment, how can we get body blows that don’t impact us.”
Aug. 22 started off without signs of trouble in the U.S. equity market, where an average of 6.2 billion shares traded each session this year.
Benchmark indexes opened higher, with the Standard & Poor’s 500 Index rebounding from a six-week low, as reports on global manufacturing and the American labor market eased concern about the Federal Reserve’s plans to reduce its $85 billion in monthly bond purchases used to help stimulate the economy.
After the first warning by Arca, owned by New York Stock Exchange-operator NYSE Euronext (NYX), e-mails from exchanges on system abnormalities started to pile up in traders’ inboxes. Three minutes after the initial communication, Lenexa, Kansas-based Bats Global Markets Inc., the fourth-biggest U.S. stock exchange, dispatched an alert that said it stopped sending orders to NYSE Arca as a precaution.
A connection was disrupted between Arca’s machines and the Nasdaq Stock Market data facility in Carteret, New Jersey, according to two people with direct knowledge of the situation. Arca’s server tried to connect to a computer system known as the securities industry processor, or SIP, which is run and maintained by Nasdaq and overseen by a committee of experts from exchanges.