Again!? If there was one universal expression heard on Wall Street, the capital markets and inside nearly every investment firm large or small, it could be, Not another trading glitch.
Last year Traders Magazine came close to naming 2012 the Year of the Trading Glitch. But with the near-constant wave of trading outages, software malfunctions and data logjams, we can safely say 2013 was the year they became commonplace.
Lets take a quick tour of the outages that came and went this year:
In August alone-usually the sleepiest month on Wall Street-trading outages plagued BATS, the CBOE, Deutsche Brses Eurex and the Tel Aviv Stock Exchange. Chinese brokerage Everbright experienced a so-called flash surge, while Wall Street giant Goldman Sachs suffered an outage for an afternoon in the same month. But the hands-down biggest trading glitch that truly rattled the markets and industry observers was the Nasdaq OMX outage that halted trading across the entire exchange for three hours in August. As the outage unfurled, the talking heads on CNBC quickly transformed into screaming heads.
Although traders appear to have taken these outages almost in stride, there have been real consequences. Goldman Sachs reportedly suspended four IT workers for updating software that caused its outage, which may have cost the firm as much as $100 million in trading losses. Nasdaq, the exchange that promotes its high-tech prowess, not only had to pay the largest fine for mishandling the 2012 IPO of Facebook, it also lost out on the IPO of another social media superstar, Twitter, last month. Nasdaq OMX CEO Robert Greifeld also received a drubbing in the media for being AWOL for nearly 24 hours during and after the three-hour outage.
In the weeks before the launch of Twitter-arguably the most anticipated Web 2.0 IPO of the year-the New York Stock Exchange took the unusual step of testing the IPO on a Saturday. This is the first time Aite Group senior analyst Robert Stowsky had ever heard of an exchange testing a forthcoming IPO in public. Exchanges usually do lode testing over the weekend, but maybe they were grabbing a headline to say that Were doing a test of the IPO, he told Traders Magazine.
And now the SEC is getting involved. This fall, the regulatory body proposed Regulation SCI to enforce routine tests of systems inside exchanges and investment firms. While its not possible to prevent every technological error that market participants may commit, we must ensure that our regulations are designed to minimize their impact on our markets and ultimately investors, said SEC chairman Elisse B. Walter on the SECs website.
According to one buyside trader, these glitches are expected, but they do have an impact. Thomas Garcia, head of equity trading for Thornburg Investments, told Traders Magazine that on the day of Twitters IPO on the NYSE, the exchanges OTC trading was down for a few hours.
At this point, its probably something that we should be used to, but when it ends up affecting you, it still frustrates you tremendously. The one that happened today definitely affected us, because we had some new accounts that we had to get invested. We couldnt invest them, because we have some pink-sheet stocks in those specific strategies, he said.
So it was a little bit frustrating. It just seems like this is happening more and more.
