The good news, if there is any, for the New York Stock Exchange (NYSE) and its parent company Intercontinental Exchange, is that the extraordinary nearly
four-hour trading halt on Wednesday appears to have been caused by a glitch related to a recently implemented software upgrade.
"The issue we are experiencing is an internal technical issue and is not the result of a cyber breach," the NYSE tweeted soon after it halted trading at 11.32am.
"We chose to suspend trading to avoid problems arising from our technical issue. N-listed securities continue to trade unaffected on other market centres."
That's comforting. Can you imagine the justifiable panic that would have roiled stock markets if the interruption had been caused by a cyber attack or terrorist attack, or because of contagion from the continuing collapse of the Chinese stock market, which has fallen between 30 per cent and 40 per cent (depending on the index) since June 12, or because Greece is on the verge of defaulting on its €315 billion (S$470 billion) public debt and leaving the euro zone?
If those, or some other nefarious reasons, had been the proximate cause of the problem, we would probably be well on the way to the market correction that most professional investors feel is inevitable, given that the market has been on a tear for more than six years and continues to trade near record highs.
Instead, according to Mr Thomas Farley, president of the NYSE, a plain-vanilla technical glitch caused him to make the decision to halt trading two hours after the market opened for the day.
Mr Farley told Bloomberg TV that soon after the market opened, customers were not getting the "messages" they were expecting to get. (The precise reason for the shutdown is still being investigated.)
He said he could have switched trading over to the emergency backup system but chose instead to shut down the NYSE while technicians scrambled to identify and fix the problem.
He said this was a more customer-friendly solution since switching to the emergency system requires complicated interfaces and would have caused customers even more sturm und drang than the halt.
Besides, he made it clear, most NYSE-listed stocks also trade on other exchanges, so most people would not have experienced interruptions.
In the end, trading resumed at 3.18pm, leaving another 42 minutes for the market to perfect its 261-point loss for the day and to make sure investors knew what would be considered the "last sale" of the day, a metric that mutual funds are required to note in every stock.
But for all of Mr Farley's polish in the face of corporate embarrassment, the truth is that the NYSE long ago lost its dominance over the stock market, with the final blow coming in March 2006 when the veritable New York Stock Exchange, then owned by its 1,366 seat holders, completed its merger with Archipelago Holdings, an electronic-trading company.
The new publicly traded company became a mere facilitator of trades or the place to go to ring "the bell" after a company's initial public offering (IPO). The floor of the NYSE is little more than an elaborate backdrop for the cable-TV business programmes at CNBC and Fox.
Computers, some high-speed, some not, rule the markets for equity, for debt, for commodities, whatever. The United States alone has 11 exchanges and something like 50 places where stocks can be traded off exchanges. The volume of stocks traded on the NYSE is a fraction of what it once was.
Sure, men - and the very occasional woman - seem to be scurrying around from post to post in their colourful jackets, acting as if they have important things to do. But this is just an elaborate charade.
Specialists rarely make markets in particular stocks any more; instead they wait around all day to record the last sale for reporting purposes. Very little trading, if any at all, takes place on the floor of the NYSE; trading is now the province of computers, which now take, match and fill orders night and day.
Men have very little to do with it. It's all about speed, proximity to the data centre and tweaking algorithms inside powerful hedge funds. It has nothing to do with liquidity, or making markets. That, too, is left to the computers.
That's why Wednesday's trading interruption is really just a public relations problem.
Instead of explaining what was going on in real time, NYSE executives said nothing, leading nervous investors to think the worst.
The NYSE failure also came around the same time that a glitch with a router grounded United Airlines flights, and when the Wall Street Journal's website went dark. Were the glitches somehow coordinated?
In the absence of an explanation from the NYSE, that seemed to be the big question that everyone was asking.
The best the NYSE could muster early on was that it was working on "a technical issue" that it was trying to resolve "as quickly as possible".
As recently as Monday, the NYSE had plenty to say about its prowess in being the place companies go to in order to raise equity capital.
During the first half of the year, the NYSE trumpeted in a press release that a total of US$94 billion was raised in 264 transactions - "more than any other exchange in the world" - including some 42 companies that raised US$12 billion from IPOs.
"Nothing has the power to unlock capital to drive innovation, create new jobs and enable long-term growth like an IPO," said Mr Garvis Toler, head of global capital markets at the NYSE.
"We take seriously our role in the capital formation process and are proud of our flawless track record of execution on behalf of our issuers." Ring that bell!
What a difference a few days make. Given the dominance of computer-driven trading and execution, service interruptions caused by introducing new software are probably here to stay. Of course, we want the latest software because it does all sorts of exciting new things faster and better than before.
But why should introducing new software on the NYSE be any different from loading your iPhone with iOS 8.4? Sometimes it crashes your phone, sometimes it doesn't.
The good news is that, generally speaking, trading in stocks continues virtually uninterrupted around the world despite technical glitches.
One day, of course, trading will halt around the world in a coordinated cyber attack.
That would be truly terrifying: an interruption in the one thing that finance exists to do - allocate capital.
The most frightening thing on Wednesday - that the NYSE failed to let everyone know in a timely fashion that its problems were nothing more than a few messages that didn't get through to customers - was a lot tamer.
NEW YORK TIMES
- William D. Cohan is the author of three books on Wall Street and, most recently, of The Price Of Silence: The Duke Lacrosse Scandal, The Power Of The Elite, And The Corruption Of Our Great Universities.
