Computer Software Glitch Forces NYSE to Halt Trading
A software glitch caused the New York Stock Exchange to halt all trading for 85 minutes Friday morning and kept a portion of the Big Board hobbled until midafternoon.
The snafu disrupted markets around the country, making it difficult to calculate stock averages and to trade options and other securities whose underlying shares are listed on the Big Board.
The forced idleness also held NYSE trading volume to 726 million shares--the lightest of the year.
Friday’s was the first computer-related shutdown on the NYSE since Oct. 26, 1998, when a broken switch triggered a 59-minute halt. The rival Nasdaq Stock Market also has experienced trading halts caused by computer woes in recent years.
“Unfortunately, it’s just a product of our technological dependency,” said Antonio Cecin, head of equity trading at U.S. Bancorp Piper Jaffray Cos. in Minneapolis.
Trading was normal by the end of Friday however, and NYSE officials expect no problems with Monday’s opening.
Officials Friday quickly identified the program that failed but said it would take “a complete diagnostic” of the computer system to tell them why it happened. Officials said they hoped to have an answer by Monday.
The Securities and Exchange Commission said Friday evening that it would do a “thorough analysis” of the trading glitch to determine what caused it and whether any steps should be taken to prevent a recurrence.
The problem materialized in the half-hour before trading opened at 9:30 a.m. Eastern Daylight Time. A number of NYSE specialists--market professionals who facilitate trading in the listed stocks assigned to them--discovered that they were unable to view electronic message traffic on their trading screens.
The NYSE switched to a backup system and opened trading, but it soon became apparent that eight of the NYSE floor’s 17 trading posts--covering about half of the exchange’s 3,000 listed stocks--were functioning improperly.
Most affected was the system for communicating small orders--mainly from retail customers--to the trading floor.
Faced with a situation where big institutions could still trade but small investors couldn’t, NYSE Chairman Richard Grasso ordered all trading halted at 10:10 a.m. Eastern time as a matter of fairness, he said.
Grasso said the glitch occurred after NYSE computer personnel overnight Thursday introduced a software upgrade to a system that controls communication between the Big Board’s main data center and its trading posts on the floor.
When the new program crashed, “it was the equivalent of a drawbridge going up,” cutting off small-order traffic to trading posts No. 1 through 8, Grasso said.
Technicians worked on the problem and thought they had it solved, so Grasso ordered trading resumed at 11:35 a.m.
Still disabled, however, were trading posts No. 1 and 2, which handle such signature names as IBM Corp. and Anheuser-Busch Cos. Those stocks were brought back into line one by one until 2:26 p.m., when the NYSE said the entire market was operational.
By day’s end, only a little over 3 million IBM shares changed hands, or less than one-third of the usual volume. IBM is one of the 28 NYSE-listed stocks in the widely followed 30-stock Dow Jones industrial average.
Friday’s trading in IBM shows that despite the new electronic markets that have sprung up in recent years to challenge the NYSE, the Big Board still rules trading in its listed stocks, said Robert H. McCooey Jr., president of the NYSE floor brokerage firm of Griswold Co.
McCooey, in an interview on the NYSE trading floor, said that more than 90% of the trading volume in IBM occurred on the NYSE, despite its problems.
Although the trading problems caused delays and frustration to some investors, no NYSE orders were “lost,” Grasso said.
At Charles Schwab Corp., for example, the largest discount brokerage, trades initiated during the NYSE halt were put into a queue in order of arrival time and were executed normally after the market reopened, spokeswoman Jennifer Hallanan said.
She said she was unaware of any additional volume of telephone calls or complaints due to the problems at the NYSE.
