Glitch at Nasdaq results in unprecedented shutdown and halts trading amid calls grow for greater regulation of markets
A glitch in the Nasdaq stock market resulted in an unprecedented shutdown of trading of over 2,000 major US stocks and options for more than two hours, creating confusion around the shares of the biggest companies in America and resulting in calls for greater regulation.
Nasdaq shut down for over three hours in the middle of the day as it investigated the outage. Trading resumed at 3.25pm ET.
The company said the the failure resulted from a glitch in software that publishes the prices of stocks listed on the exchange. Some of the largest American companies, including Apple and Facebook, are listed on Nasdaq; about 20% of the S&P 500 companies call Nasdaq their home exchange. Despite the closure the exchange ended the day up 38 points or 1.1% at 3638.71.
Because other exchanges depend on Nasdaq's pricing software for accuracy, the outage affected a host of other exchanges, ranging from NYSE Euronext to systems that serve primarily professional investors who trade in large blocks of thousands of shares at a time. By one estimate, the halt locked up roughly $5.7tn in shares.
Nasdaq said it would not automatically cancel any pending stock trades, instead advising investors to cancel their own trades before the system goes back up.
The Securities and Exchange Commission, which regulates stock exchanges, said it is monitoring the situation.
"The market being down for an hour is just shocking. It's not the kind of thing that's happened before," said David Lauer, an independent consultant on the technical aspects of stock markets. "You're not going to have confidence in the markets and keep your life savings and retirement in the markets if you keep seeing this happen."
"It's really shocking. We're stuck," said Ramon Verastegui, head of global engineering and strategy at Société Générale. "If we want to trade Apple, we can't."
The outage refocused attention on a series of prominent failures in market technology that have shaken the nerves of investors. Earlier this week, Goldman Sachs made a mistaken options trade that rippled across the markets and affected a number of financial institutions. Nasdaq opted to cancel the mistaken orders.
Similar glitches have been if not common, then recurring since the famous 2010 "flash crash" that resulted in short-term panic but no long-term changes to trading practices.
"I would not want to speculate other than to say this is huge. Everything is halted in the market," said Sal Arnuk at Themis Trading in Chatham, New Jersey. Options trading was also halted, the exchange said.
The failure is sure to refocus attention on regulatory efforts to strengthen the technological backbone of the major stock exchanges.
Currently, exchanges can voluntarily choose to have their backup plans reviewed by the SEC, which then audits their technological systems. One potential rule, known as Regulation SCI, would require major exchanges to submit to the audits. That regulation is pending comment.
Lauer said the shutdown should be a wake-up call to regulators to monitor exchanges, which he said have not kept up with the speed of current technology. "We have an overly complex system, and it's complex to the point of dysfunction," he said.
When Facebook floated in May last year, early trading was delayed for hours as the exchange systems seemed unable to cope with the scale of the share offering and failed to send electronic reports to traders to confirm whether stock had been bought and sold. Swiss banking group UBS later launched a lawsuit against the exchange claiming it lost £240m in the bungled listing.
"I can't remember this happening in recent memory," said Christopher Nagy, president of consultancy firm KOR Trading and a former head of trading at TD Ameritrade.
The US financial regulator, the Securities and Exchange Commission, said it was monitoring developments and was in touch with the exchanges on the matter.
The failure at Nasdaq is the latest of several high-profile glitches to hit US markets. The incidents – including the "flash crash" in 2010, errors related to the Facebook flotation and Knight Capital's disastrous trading blowup last year – have undermined market confidence. Earlier this week, a problem at Goldman Sachs resulted in a flood of erroneous orders being sent to US equity options markets.
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