More Evidence of Financial ‘System’ Breadown? Historic ‘Flash Freeze’ Halts Nasdaq Trading
Thanks to Golden Age of Gaia.
Stephen Cook: This is the latest in a series of anomalies to have hit the financial sector/markets this week and follows on from the Goldman Sachs’ issue – http://goldenageofgaia.com/2013/08/evidence-of-money-system-breakdown-goldman-sachs-working-with-exchanges-to-resolve-options-trades/. They’re saying this is a ‘computer malfunction’… which is what Google and Microsoft also supposedly had – http://goldenageofgaia.com/2013/08/internet-outages-intrigue-as-both-google-and-microsoft-go-offline/
Something BIG is going on (or, as I like to say, ‘something good is happening’!) and my gut is that these ‘events’ are all linked – remember, to test out new protocols and procedures you sometimes have to go ‘offline’ for a while. (Oh, and today is a master number – 22)
By Reuters – August 22, 2013
Computer malfunctions shook US equity trading for the second time this week, freezing thousands of stocks listed on the Nasdaq Stock Market for three hours and raising fresh concerns about the fragility of exchanges.
The second-biggest American exchange operator, home to 3200 companies from 37 countries, halted transactions in all of its securities shortly after noon, local time, a decision that caused buying and selling to stop on its platform and dozens of others where the securities trade. Errors in the feed used to disseminate quotes and prices were to blame, Nasdaq said on its website.
Many of the country’s most-traded shares, from Apple to Google and Facebook, ground to a virtual standstill as brokers were unable to execute customer orders. Nasdaq equity indexes didn’t update during the outage and volume in stocks listed on the rival New York Stock Exchange also dwindled as liquidity dried up around the country.
“The real fear is that we get stuck wearing some kind of risk because of an interruption that is not of our doing,” said Max Breier, a senior equity derivatives trader at BMO Capital Markets. “Any halt in information or ability to trade is going to hinder our ability to manage our risk and take positions.”
Nasdaq resumed trading at around 3.25pm, ending a roughly 3-hour, 11-minute shutdown that was the longest in recent memory.
“Any brokerage firm gets paid by executing orders,” said Sal Arnuk, co-head of equity trading at Themis Trading in Chatham, New Jersey. “So yes, we are frustrated, and this hurts us, it hurts the market and it hurts public confidence.”
Nasdaq blamed a problem with distributing stock price quotes for the shutdown. A source familiar with the matter described the problem as a “data feed issue”.
“This is quite substantial. The term being coined is the ‘Flash Freeze’,” Mr Arnuk said.
During the shutdown, trading of shares not listed on Nasdaq continued, but transactions could not be executed on the Nasdaq platform. Options trading was also halted.
“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 Securities and Exchange Commission said it was in touch with the exchanges, with Chairman Mary Jo White overseeing developments from her home office near New York City.
White House spokesman Josh Earnest said President Barack Obama had also been briefed about the disruption.
“As we continue to eliminate human beings from the execution of security trading, this is the problem you run into,” said Stephen Massocca, managing director of Wedbush Equity Management in San Francisco. “These events are going to take place, given the level of automation.”
The outage was the latest black eye for Nasdaq, which in May agreed to pay $US10 million, the largest penalty ever levied against a stock exchange, to settle SEC civil charges over mistakes in handling the Facebook IPO.
Nasdaq’s own stock, which had been up 0.8 per cent prior to the halt, traded down as much as 5.4 per cent after trading resumed, before closing down 3.4 per cent.
James Angel, a Georgetown University finance professor who also sits on the board of rival exchange operator Direct Edge, said Nasdaq appeared to take steps to ensure that trading reopen in an orderly fashion and with correct pricing.
“We can live with the market being closed for a little bit, but we can’t live with bad pricing,” he said. “It’s far better to have the market shut down and take its time re-opening, than to have what happened with the Facebook incident… It looks like they’ve learned their lesson.”
William Lefkowitz, options strategist at National Securities in New York, said options trading in such companies as IBM dried up during the halt. But he said the reopening was “very orderly and liquidity is back to normal. It is almost like it did not happen.”
Thursday’s outage was the latest high-profile glitch in US stock markets.
On Tuesday, a technical problem at Goldman Sachs resulted in a flood of erroneous orders being sent to US equity options markets.
Two weeks earlier, on August 6, stock exchange operator BATS Global Markets was hit with a nearly hour-long outage.
Last year, a trading blowup at Knight Capital Group was a contributing factor to the eventual sale of that company.
“The frequency of technical issues affecting trading is a wake-up call to business leaders in capital markets,” said Lev Lesokhin, executive vice president of Cast, a specialist in business software analysis. “They need to carefully scrutinize the structural integrity of their software systems.”
Other trading venues were also affected by Thursday’s outage, and several “dark pools,” which execute orders anonymously, were forced to stop trading, according to several market participants.
Thursday’s outage could cause problems for Nasdaq at the SEC, which has recently cracked down on stock exchanges to beef up their compliance with regulations and make sure they are policing themselves.
White, who joined the regulator in April, is a Nasdaq veteran, having served on its board as recently as 2006.
In June, a month after Nasdaq settled with the SEC over Facebook, the Chicago Board Options Exchange was ordered to pay $6 million to settle SEC charges that it failed to properly enforce short sale rules.
The NYSE last year became the first exchange in SEC history to face a financial penalty after it supposedly gave some customers an “improper head start”.