VIDEO

Nasdaq market paralysed by 3-hour shutdown

An electronic display in Times Square displays news about the Nasdaq in New York, on Thursday, Aug 22, 2013. -- PHOTO : AP
An electronic display in Times Square displays news about the Nasdaq in New York, on Thursday, Aug 22, 2013. -- PHOTO : AP

NEW YORK (REUTERS) - Trading in a large part of the United States (US) stock market came to a halt for much of Thursday after an unexplained issue shut down trading of Nasdaq-listed securities, the latest black eye for the US securities trading business.

The abrupt halt shortly after noon caused trading in shares of Apple, Google, Microsoft and more than 3,000 other US companies to stop.

Nasdaq resumed trading at around 3.25pm EDT (3.25am Singapore time), ending a roughly 3-hour, 11-minute shutdown that was the longest in recent memory.

"Any brokerage firm gets paid by executing orders," said Mr 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." All traffic through Nasdaq had stopped at 12:14:03pm (12.14am Singapore time), and the exchange and its larger rival, NYSE Euronext's New York Stock Exchange, said all trades executed between then and 12:23:31pm would stand.

Trading in a single stock resumed at about 3pm., and other stocks followed. 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.

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." 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 Mr 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.

The interruption means that investors had very limited market access to trade such familiar names as Apple Inc , Facebook Inc, Google Inc and Microsoft Corp. In all, Nasdaq lists about 3,200 shares.

"As we continue to eliminate human beings from the execution of security trading, this is the problem you run into," said Mr Stephen Massocca, managing director of Wedbush Equity Management LLC in San Francisco.

"These events are going to take place, given the level of automation."

TECHNICAL GLITCHES

The outage was the latest black eye for Nasdaq, which in May agreed to pay US$10 million (S$12.77 million), the largest penalty ever levied against a stock exchange, to settle SEC civil charges over mistakes in handling the Facebook IPO.

Mr 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."

Mr William Lefkowitz, options strategist at National Securities in New York, said options trading in such companies as International Business Machines Corp 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 Group Inc resulted in a flood of erroneous orders being sent to US equity options markets.

Two weeks earlier, on Aug 6, stock exchange operator BATS Global Markets was hit with a nearly hour-long outage.

Last year, a trading blowup at Knight Capital Group Inc 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 Mr 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.

SEC 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.

Ms 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 US$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" on trading information.

In March, the SEC proposed rules to require exchanges and other trading platforms to be better prepared to handle major market disruptions, including those caused by technology glitches. Those reforms are still out for public comment.