An unexplained IT glitch halted all trading on the Nasdaq market for approximately three hours on August 22. An issue with the system used to disseminate trading quotes caused two outages and forced the exchange to suspend trading of all shares. The outage comes in the midst of ongoing concern about the integrity of computer systems used in financial markets.
The specific system at fault was one associated with handling trading quote information, IDG News Service reported. After a brief interruption in the morning, a second outage suspended trading on both the stocks and options markets from just after noon until 3:25 p.m. As a result, prices remained frozen on thousands of stocks, and trading suspensions spilled over into other electronic platforms, the Wall Street Journal noted. Nasdaq said that it would not cancel any open orders, but customers were allowed to cancel orders if they wished. The market closed up 38 points at the end of the day.
Nonetheless, many investors expressed frustrations at their inability to trade and suggested that such incidents could damage confidence in the markets. Additionally, some noted that it could make properly valuing funds and indexes at the end of the day more difficult, the Wall Street Journal reported.
“The whole thing gets sloppy when you make decisions on the fly, and it’s disruptive to the industry,” Gordon Charlop, managing director at Rosenblatt Securities, told the publication. “How are we going to value funds at the end of the day? It creates some confusion and uncertainty, and for investors, that’s the one thing you count on not happening.”
Ongoing market concerns
The same system suffered from a glitch on April 5, 2012, IDG noted. The incident is also the latest in a string of issues raising questions about the increasingly digital nature of financial trading. Earlier in the week, the market was disrupted when an algorithmic mistake at Goldman Sachs unleashed a massive set of false orders on the New York Stock Exchange, and earlier this year Nasdaq was fined $10 million for trading errors during the 2012 Facebook IPO.
“The market has gotten quite complex and needlessly so,” Sal Arnuk, co-founder of the brokerage Themis Trading, told NPR.
As financial players look to minimize the damage from such incidents and retain investor confidence, ensuring flawless operation of all systems is essential. Tools such as static analysis software can help developers catch potential algorithmic errors that could unleash market problems or force trading to stop. By implementing thorough checks during the development process, organizations can prevent the bugs that risk disrupting financial markets.
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