Nasdaq admits partial blame for trading freeze

Nasdaq external building
Image caption The Nasdaq is the second-largest US stock exchange

The company behind the Nasdaq has admitted partial responsibility for a three-hour freeze in trading on the tech stock exchange last week.

But Nasdaq OMX also pointed the finger at rivals NYSE Euronext, blaming them for overwhelming Nasdaq's systems.

NYSE's Arca system sent "a stream of inaccurate symbols", and cut out over 20 times, swamping Nasdaq's computers.

Nasdaq was "deeply disappointed" that its back-up systems failed to handle the data volume. NYSE made no comment.

"Our backup system did not work" chief executive Bob Greifeld admitted in an interview.

"There was a bug in the system... and we need to work hard to make sure it doesn't happen again."

Nasdaq said it would report to regulators within 30 days on how it intends to fix its "securities information processor" (SIP) to make sure the problem would not be repeated.

'Latent flaw'

The stock exchange, which specialises in the trading of shares in US technology firms, said that the data traffic generated by Arca on the morning of 22 August was double what the SIP's data ports were able to handle.

Each time Arca tried to reconnect it sent a burst of data, peaking at over 26,000 quote updates per data port per second. This compared with a daily average of just 1,000 updates per second.

"The confluence of these events vastly exceeded the SIP's planned capacity, which caused its failure and then revealed a latent flaw in the SIP's software code," the stock exchange said.

The glitch was fixed within 30 minutes, but three hours were required to complete testing before the market could open.

The glitch highlights the continuing problem of high-speed accidents, as the world's stock exchanges are increasingly dominated by automated trading controlled by computer algorithms rather than human beings.

Last Friday, the Nasdaq's Mr Greifeld alluded in an interview to outside parties as being behind the problems, implying that these may include computerised trading firms as well as rival stock exchanges.

"We have to be aware that the other person will not always act in the proper way," he told news channel CNBC, specifically mentioning high-frequency traders - financial firms that buy and sell thousands of times a second, using computers to take advantage of tiny price discrepancies between the different stock exchanges.

"We have 13 different exchanges, we have hundreds of market participants, we are all interconnected in a number of fundamental ways," the Nasdaq boss said.

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