The three-hour outage on the Nasdaq last Thursday has us channeling Clint Eastwood as we look at the Good, the Bad and the Ugly of the outage. As a refresher, the Nasdaq exchange halted trading shortly past noon ET after it became aware of a problem disseminating price quotes.
With a few days to hone our 20/20 hindsight glasses, here is my take.
The Good (We use the term “good” pretty loosely.)
- The Nasdaq shutdown appeared to occur in an orderly manner and didn’t disrupt other parts of the stock market.
- Timing was “good” as it happened during the summer on a relatively quiet day and certainly didn’t have the same impact as the Flash Crash of 2010, which also happened on a Thursday.
- Technical issues were resolved in the first 30 minutes of the shutdown according to Nasdaq and the remaining time was used to coordinate with other key stakeholders (i.e. exchanges, regulators, etc) for an orderly re-opening 35 minutes before the market close.
The Bad (This category is pretty self-explanatory. Nobody likes downtime!)
Trading came to a halt for three hours and as a result about 3,200 Nasdaq-listed stocks were paralyzed.
The shutdown was sudden, unexpected and certainly made investors nervous.
Some Nasdaq officials are sourced as saying “their technicians should have been able to manage the problems and avoid the halt,” which isn’t exactly a vote of confidence that this won’t happen again. That said, exchanges as well as regulators are taking this very seriously.
The Ugly (What are the aftershocks from the outage?)
The heat is on. The Nasdaq outage places more pressure on the exchange and others to ensure something of this nature doesn’t happen again.
Some say if glitches continue it could “undermine confidence at a time when U.S. stock indexes are near records but many investors are anxious about asset prices.”
Finger-pointing between Nasdaq and NYSE has begun as the SEC asks both sides for a recount of events leading up to the shutdown. The role in the outage of NYSE's electronic stock market, Arca, is at the heart of the disagreement as the halt was proceded by connectivity problems between Arca and Nasdaq’s Securities Information Processor (SIP).
On September 12, SEC Chair Mary Jo White will meet with the heads of Nasdaq and NYSE to discuss the outage. Sources say part of the meeting will cover the resiliency of Nasdaq’s SIP, which is used to consolidate and distribute stock prices.
We'll certainly be tuning into the September 12 meeting. Will you?