Tuesday, January 21, 2014

Nasdaq Fixes Another Malfunction With Price Feed

For the second time in two weeks, a malfunction in a price feed overseen by Nasdaq OMX Group Inc. led to a trading halt of some of the companies it lists.

Nasdaq's securities information processor had a "hardware memory failure" at 11:35 a.m. New York time today, the company said after a preliminary review. The issue was resolved six minutes later. Direct Edge Holdings LLC, another U.S. exchange operator, briefly stopped transactions for some Nasdaq-listed shares, according to a statement.

Nasdaq halted trading in thousands of its stocks for three hours on Aug. 22 out of concern a connectivity issue in the feed, known by its initials SIP, would cause uneven dissemination of prices in the market. The disruption underscored how quickly the integrity of the U.S. market can be subverted as orders to buy and sell shares are matched on more than 50 exchanges and alternative electronic venues.

"We are not inspired by the fact that this has become a recurring issue," Peter Sorrentino, a senior vice president who helps manage about $15 billion at Huntington Asset Advisors, said by phone from Cincinnati. "This type of thing does an awful lot to kill investor confidence in the markets."

Backup System

Last month's market disruption snowballed when a software flaw prevented Nasdaq's backup program from kicking in. This time, the affected system "successfully failed over," according to the company.

"Any piece of software, even if it's run for 100 percent for 10 years, there's still flaws in it," Nasdaq Chief Executive Officer Robert Greifeld said in an Aug. 29 interview with Bloomberg News. "Whatever you have, it's a question of what unique set of circumstances happen to reveal that."

The Aug. 22 flaw was revealed when NYSE Arca, one of the exchanges that sends price and trade data directly to the SIP, sent more than 20 "connect and disconnect sequences" and a stream of quotes for inaccurate stock symbols, according to a Nasdaq summary released Aug. 29. The amount of data "vastly exceeded" the capacity of the processor, Nasdaq said.

The SIP will manually block connection attempts the next time it's deluged with data, according to a separate statement today based on a review by the 15-member committee that oversees the feed. The group also plans to review today's issue.

Tape C

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Nasdaq and the New York Stock Exchange, the venues where almost all U.S. companies go public, each operate SIPs that receive quotes and trades from around the country and disseminate them in three groups, known as tapes. NYSE operates Tapes A and B, and Nasdaq runs Tape C.

Today's disruption affected Tape C stocks with symbols from "PC" to "SPZ," Nasdaq said. The exchange operator's shares briefly erased gains following the issue, declining as much as 0.9 percent, before rising 0.7 percent to $30 as of 4 p.m. New York time.

U.S. Securities and Exchange Commission Chairman Mary Jo White plans to meet Sept. 12 with the heads of exchanges and other self-regulatory organizations to discuss the Aug. 22 halt.

"As is our practice, we're in contact with them and monitoring developments," John Nester, an SEC spokesman, said regarding today's Nasdaq outage.

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