The latest disruption at NASDAQ– the longest trading halt in the floor’s history and also the biggest one since Hurricane Sandy last year - has again raised questions over potential dangers of the super-fast electronic trading systems.
The high-tech floor dominated by such great names as Microsoft, Apple and Google halted trading for three hours on Thursday. The NASDAQ attributed the disruption to a break at a feed that distributes all quotes and prices for the listed stocks.
Trading in 2,500 US-listed companies got back on track just thirty minutes before the normal market close, leaving investors outraged.
“It’s positive that the market was actually up, [I] can’t imagine what would have happened if this was [Wednesday] when the Fed minutes came out,” as the Financial Times (FT) quotes Paul Hickey, co-founder of Bespoke Investment Group.
“These types of things happen, but it seems they happen a lot more than they used to,” Paul Hickey said. “You’d think with technology you’d have less of this occurring.”
The three-hour trading halt on the NASDAQ followed a series of tech-rooted disasters involving various exchanges.
They included Facebook's bungled public offering launch on NASDAQ
in May 2012, one of the largest IPOs in history. The SEC later
fined NASDAQ $10 million for that disruption - the largest
penalty it has ever imposed on an exchange.
The aftermath
The damage of such disruptions can’t be overestimated, as NASDAQ -listed companies accounted for 28 percent of all shares traded so far this month, according to data from BATS Global Markets Inc.
“The NASDAQ is such a huge part of stocks that are listed and the overall volume. If you can’t trade a NASDAQ-listed stock or an ETF linked to it, you are losing such a huge part of the overall equity market,” a managing director at a large Wall Street trading firm told the Financial Times (FT).
Experts say the repeated disruptions could undermine investor confidence at a time when US stocks are trading close to their record high levels.
Stock trading now relies heavily on computer systems that exploit split-penny price differences. Stocks can be traded in fractions of a second, often by automated programs, which makes the markets more vulnerable to technical failures.
The NASDAQ disruption could also trigger new rounds of regulatory scrutiny on computer-driven trading, though so far almost nothing has been done in practice.
After the 2010 market break, regulators “never really developed a fix for it, and these kinds of things are going to continue to happen,” said Michael Greenberger, a law professor at the University of Maryland who was the top market oversight official at the Commodity Futures Trading Commission in the late 1990s. High-speed trading commanded by mathematical formulas rather than people brings “the possibility of a calamity,” Greenberger said.
Back in 2010, the Dow Jones industrial average plunged hundreds of points in mere minutes, which was later coined a “flash crash”. A months-long investigation by regulators concluded that the sudden drop occurred when a trading firm executed a computerized selling program in an already stressed market. The trade, worth $4.1 billion, led to a chain of events that ended with traders swiftly pulling their money from the market, the review found.