A technical glitch halted trading on the Nasdaq for three hours yesterday. Nasdaq's parent Nasdaq OMX Group called a stop to trading when it became aware that price quotes were not being disseminated by the Securities Information Processor (SIP), which consolidates and disseminates all prices for the industry.
It said in a statement: “There was a connectivity issue between an exchange participant and the SIP, which led to degradation in the ability of the SIP to disseminate consolidated quotes and trades. The cause of the issue has been identified and addressed. Responding to the SIP issue, in order to protect the integrity of the markets, we issued a regulatory halt for all trading in Nasdaq-listed securities. In the first 30 minutes, technical issues with the SIP were resolved. For the remaining period of time, Nasdaq OMX, other exchanges, regulators and market participants coordinated with each other to ensure an orderly re-opening of trading in Nasdaq-listed securities. Trading resumed and the balance of the trading day finished in normal course. Nasdaq OMX will work with other exchanges that are members of the SIP to investigate the issues of today, and we will support any necessary steps to enhance the platform.”
Warwick Business School assistant professor of finance, Arie Gozluklu, comments: “This is not the first time that trading on an exchange has suffered a technological problem and probably not the last time. There were other examples such as the Flash Crash in 2010, the Facebook IPO, while Goldman Sachs was hit by a bug and there was the Knight Capital case last year. There is speculation this is down to the number of high frequency traders, as algorithmic trading now makes up between 50 and 60 per cent of trades in the US.”
He adds: “Nasdaq could see its reputation harmed by this. Nowadays exchanges are profit-making organisations with the traditional big two of the New York Stock Exchange and Nasdaq facing competition from many alternative exchanges in the US. It could put off firms going public due to these types of liquidity problems which limit access to capital. Trust in the exchange is very important and the US Securities and Exchange Commission are likely to push for more stringent rules to stop these system failures. There could be fines or penalties for technological problems, but it should also take into account other players in the game, not just the exchanges.”
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