Stock exchange operators have not been restrained in pointing out their competitors’ technology flaws in an attempt to win listings, and software integrity is a discussion point in pitch meetings, according to a recent Wall Street Journal article. With an ongoing string of errors affecting both the New York Stock Exchange and Nasdaq OMX markets, the quality of software in trading systems is a major point of contention, as every shortcoming of a competitor constitutes fair game for debate.
In recent weeks, a glitch delayed trading on European cash markets operated by NYSE Euronext, while Nasdaq was fined $10 million for software errors that hampered the success of last year’s Facebook initial public offering. Other software issues in recent months have afflicted markets such as BATS Global, the Nasdaq OMX-operated Stockholm Stock Exchange and more. And exchanges are not shy about pointing out these mistakes when trying to win customers, the Wall Street Journal reported.
“Both exchanges threw everything and their mother at us to get our business,” David Callisch, vice president for corporate marketing at wireless equipment maker Ruckus Wireless, told the publication, referring to his company’s recent IPO. “Each of the exchanges had examples of companies on the other exchange having trading problems.”
Callisch said that technology was not a factor in his firm’s decision, and other experts told the Wall Street Journal that such issues rarely are. However, as revenues from corporate listings become more central to the profits for exchanges such as NYSE and Nasdaq, competition for such deals has become fierce.
Fighting for deals, reassuring customers
According to figures from Dealogic, NYSE has landed 14 technology and internet IPOs worth $2.6 billion since Facebook’s May 2012 IPO, while Nasdaq has drawn 12 worth $1.4 billion. If that trend continues, 2013 could be the first year the value of such listings for NYSE surpasses Nasdaq since 2002. While Facebook was a major win for Nasdaq, its troubled handling of the IPO has made the incident a talking point for both exchanges.
Nasdaq executive Bob McCooey told the Wall Street Journal that the incident comes up in every meeting with a company planning an IPO and is often brought up by the exchange itself to ensure there are no lingering questions. At the same time, NYSE listings official Brian Curran has used the glitch as a talking point for his exchange’s own success, the publication noted. McCooey also drew attention to the software error that led to Knight Capital losing more than $400 million due to erroneous orders last year, explaining that both exchanges have had errors.
“Exchanges are the opposite of the airline industry,” Lise Buyer, principal at IPO advisory firm Class V Group, told the Wall Street Journal. “When there’s an issue with one airline, nobody else talks about it. But with the exchanges, the stumbles of one guy always figure prominently in the other’s pitch.”
As such incidents become the basis of competitive advantage and a point of contention for exchanges looking to win business, minimizing software errors is likely to take on additional significance. Development teams looking to avoid glitches and ensure smooth operation can use tools such as static analysis software to eliminate errors.
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