A technical problem on the Nasdaq exchange caused US equity markets to a halt for more than three hours.
US equity markets were crippled by a technical breakdown on the Nasdaq exchange yesterday on 22 August. The technical outage brought stock trading on the country’s second-largest exchange to a halt for more than three hours in an unprecedented shutdown of trading of over 2,000 major US stocks and options.
This is the longest period of time that trades on the Nasdaq have been stopped due to a technical outage in its history and users of the exchange are understandably concerned about the lack of trading opportunities and stalled vulnerable positions.
Fortunately, trading resumed just over 30 minutes before the close of the market yesterday, allowing investors and traders to at least ensure their portfolios were accounted for before the end of trading, but the complaints are still likely to be long and loud.
Nasdaq claims the three hour outage occurred after a feed that disseminates all quotes and prices for stocks listed on its exchange was disrupted.
After resuming trading at 15:25 EST in the US, the Nasdaq closed up one per cent to 3,102 as traders rushed back in upon resumption. Trading had stopped at 12:14 EST when the problem first arose.
News Analysis and Market Reaction
Commenting on the technology failure, Securities and Exchange Commission (SEC) chairwoman, Mary Jo White, said: "Today's interruption in trading, while resolved before the end of the day, was nonetheless serious and should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants."
According to Rik Turner, a senior financial services technology analyst at the Ovum consultancy, the problem can perhaps be summed up as “another day, another computer glitch in US trading”. Referring to the SEC comments by White about the need to ‘reinforce collective commitments to addressing technological vulnerabilities’ Turner warned that: “if more safeguards are put in place, they are certain to cramp the industry’s style”.
“Now, of course, comment’s like Ms White’s are welcomed by all those who wish to see us avoid a global financial meltdown provoked by technology. Yet with the financial markets, remember there are vested interests against additional safeguards - for they mean additional cost and reduced flexibility as firms have to jump through more hoops to comply with increasingly stringent regulatory requirements, and invest significant amounts to do so. Around 40% of investment banks’ IT budgets, for instance, are already devoted to compliance.
Still, while the systems continue to fail in one way or another, regulators will continue to fret and, in consequence, to pass new rules in an effort to safeguard the global financial system. Market participants, be they the buy side, sell side or trading venues, will just have to grin and bear it ... and reach for their chequebooks.”
By Gary Cooper and Neil Ainger