Nasdaq Outage Gives Network a Black Eye
The Nasdaq Stock Market’s computerized systems shut down near the close of Tuesday’s record trading day, in a failure that angered traders and gave a black eye to Nasdaq--which bills itself as “the stock market for the digital world.”
Nasdaq’s trade-reporting and quotation systems--the eyes and ears of the all-electronic market--crashed nationwide at 3:41 p.m. Eastern time and stayed out until 3:57 p.m., three minutes before the close of the regular trading day.
Although some Nasdaq trading continued manually, many traders were in the dark in what is often one of the busiest times of the day.
“We were sitting here for 17 minutes with no controls on the plane,” said Antonio Cecin, chief of equity trading for U.S. Bancorp Piper Jaffray in Minneapolis.
He and other traders said Nasdaq’s systems have had less severe but persistent problems for the last two months and appear to be choking on the huge transaction volume during the technology-stock surge that has propelled the market to new heights.
The Nasdaq composite index Tuesday jumped 75.98 points, or 2.3%, to a record 3,295.52--the 11th record in the last 13 trading days.
Even with the outage period, total trading volume was 1.496 billion shares, eclipsing the record of 1.45 billion shares set Nov. 9.
In a statement Tuesday night, Nasdaq said the cause of the glitch was “still under review but is believed to be related to an interday software upgrade that was put in place to respond to today’s heavy volume.”
Nasdaq said its systems were functioning properly for reporting of trades in the extended-hours session from 4 p.m. to 6:30 p.m.
During the shutdown, market participants were unable to see price quotations or conduct trading over Nasdaq’s automatic-execution system for small orders. However, some traders conducted trades by phone, and in fact 100 million shares traded by phone during the outage.
The outage was a minor public-relations windfall for the growing army of electronic communications networks, or ECNs, that compete directly with Nasdaq dealers for trades in those stocks.
Traders scrambled to route orders through the alternative networks, such as Island ECN and Reuters’ Instinet ECN unit. The ECNs, which match buyers and sellers, have mushroomed in recent years and now are estimated to handle more than one-third of all trades in Nasdaq issues.
Trading-system outages have occurred infrequently on Nasdaq and the New York Stock Exchange in the 1990s. More recently investors who use online brokerages have suffered through a series of outages and system jams on those brokerages’ own order-routing networks, amid the continuing boom in orders from individual investors.
Some ECNs also have struggled. Instinet was down for 32 minutes on Oct 22.
One of Nasdaq’s more memorable computer glitches occurred in 1994, when the market blamed a 34-minute midday outage on a squirrel that chewed through the communications line linking the market to its primary computer center in Trumbull, Conn.
“That squirrel is now the size of a raccoon,” Piper Jaffray’s Cecin joked Tuesday, referring to the latest system outage.
He finds it frustrating to see Nasdaq officials announcing new market ventures in Europe and Japan instead of devoting all their resources to capacity issues at home.
“I wouldn’t be talking about the next war I’m going to wage while I’m still bleeding,” Cecin said.
Nasdaq had an 85-minute shutdown last March, but Tuesday’s was worse in some respects because it came at the close--leaving traders no time to work through their backlog of orders.
Some traders said the shutdown might cost them money.
On a day like Tuesday that ends with a surge in prices, many traders might want to have a net “long” position overnight--a bet that the market would keep rising this morning, explained James R. Miller, chief of Nasdaq trading at Robert W. Baird & Co. in Milwaukee.
Instead, because of the outage, they might find themselves in a “short” position, scrambling to buy shares for clients whose buy orders were received but not filled during the outage Tuesday, Miller said.
If the market were to rise sharply at today’s opening, such traders could be exposed to significant losses from their short positions.
For customers who tried to buy or sell a fast-moving stock like Qualcomm during the shutdown, it may be difficult to determine what the price would have been if the outage hadn’t occurred, said Mary Burnes, chief of Nasdaq trading at brokerage Edward Jones & Co.
In such cases, she said, her brokerage would probably negotiate with the customer to reach an acceptable price.
Various system problems on Nasdaq have “cost me seven figures this year,” complained the chief of one trading desk. “We can lose money all by ourselves--we don’t need Nasdaq’s help.”
Still, some traders said it was probably fortunate that the glitch came on an “up” day rather than during a market plunge.
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