Lessons Learned from the July New York Stock Exchange (NYSE) Suspension

Back on July 8th of this year, the New York Stock Exchange (NYSE) experienced a temporary outage and proactively suspended trading. In many ways, the NYSE acted swiftly and responsibly when they noticed that there was a technical issue with its trading platform. The NYSE realized quickly that traders would not be able to reliably trade and ultimately decided to suspend trading across the market until full functionality could be restored. In total, NYSE trading was suspended for nearly four hours.
 
Although the overall impact of the downtime was minimal in the grand scheme, had this event impacted the public market data feed which traders and investors use to access critical information on public markets, the impact would have been more severe. Even still, there are some takeaways from this event. A positive: the success of the SEC Regulation NMS implementation. A negative: critique of the initial communications from the NYSE. Let’s examine these a little closer.

A Win for SEC Regulation NMS

The technical issues that caused the NYSE to suspend operations on July 8th occurred as the result of a new software rollout. All open orders at the time were canceled. Most investors were able to continue trading utilizing one or several of the 11 other Exchanges or 40+ dark pools to execute trades. A recent Wall Street Journal article¹ indicated that as of 2005, 80% of the trades conducted across the U.S. stock market were via the NYSE. That figure currently stands at about 20%, in part because of a 2007 regulation commissioned by the SEC called Regulation NMS (national market system). This rule, enacted in 2007, allows for orders to be directed to the exchange that quotes the best price. It also reduces transaction fees for investors as a result of increased competition. Therefore, there is fortunately redundancy and flexibility for traders if a single or multiple markets are experiencing downtime. Had July’s technical glitch taken place a decade earlier when the majority of US stock trades were executed on the NYSE, the impact would have been more severe.

Communication Issues: Social Media Not Enough

Many described the initial communication by the NYSE on July 8th as poor. The NYSE primarily used Twitter as a means to release information about and during the trading suspension. While leveraging social media outlets is helpful and can allow businesses to reach a wide audience, it shouldn’t act as the sole source of information. While pertinent information may have reached the 1.7 million Twitter followers of the NYSE, it was still a limited release of information to a limited group - not ideal when communicating an interruption that could have a major impact.

There was also a negative reaction to the roughly 20-minute window between when the NYSE initially announced a “technical issue” and when they confirmed that the interruption was not a cyber-attack and simply the result of an internal problem. Coincidentally, both the Wall Street Journal website and United Airlines experienced glitches on the same day, prompting many to wonder if there was a larger cyber-attack at play.
 
Perhaps it simply took the NYSE time to confirm what the cause of the issue was, and that’s why the reason was not communicated with the initial message. But if not, that kind of information should have been communicated with the first alert. Doing so would have reduced confusion and any doubts among traders and investors in those initial minutes. Although 20 minutes is a short time period, with today’s social media and news coverage capabilities, it’s more than enough time to create a small panic. 
 
In conclusion, technology glitches and issues will happen; we know this. And in today’s marketplace, communication, technology and policy updates need to walk in step to ensure that when interruptions happen, response and recovery are enacted quickly and efficiently with minimum confusion to stakeholders.
 
¹ http://www.wsj.com/articles/the-next-stock-market-shutdown-could-be-much-worse-1439764355

Photo Credit: Twitter