After a three-hour outage of its trading systems, the New York Stock Exchange has resumed trading and exchange officials have said that they will close as usual.
But what next? What will the second oldest stock exchange in the United States — The PHLX is actually older — do to assure its clients that an outage of this magnitude never happens again?
As this is not a rare occurrence on Wall Street and the U.S. capital markets — DirectEdge experienced a much easier-to-ignore outage of its own yesterday — we can expect a few events to occur.
Step One: The Coroner’s Report
NYSE will issue a report to the regulators and the media about the possible causes to the outage. So far, the speculation on Twitter ranges from the ridiculous (a melodramatic post from Anonymous stating “Wonder if tomorrow is going to be bad for Wall Street – we can only hope.”) to the software upgrade that NYSE’s IT team performed earlier this morning. We should look closely at this software patch, as described on NYSE’s website:
Due to the previously reported technical issue, customers may not have received acknowledgements on orders submitted before 0930 ET for the symbols in the attached file. Customers are advised to cancel any unacknowledged orders in these symbols and to contact Trading Services Desk with any issues.
Connectivity for the following 2 BCCG gateways has been restored.
Perhaps not entirely.
Step Two: A Call to Action
The next few days will echo with the sounds of salesmen as IT vendors clamor to make hay over the NYSE outage and how investment firms large and small should — Must! — update their back-office systems immediately. And that fact that we do not know the exact cause of the outage will not matter. Even as government and exchange officials denied seeing any evidence of a cyber-attack, today’s outage will be seen as a call to upgrade their aging and vulnerable systems.
Step Three: Revive Reg SCI
We will hear more about Regulation System Compliance and Integrity or Reg SCI in the coming weeks and months. Again. RegSCI caught on and was adopted by the SEC after the wave of market events such as the Flask Crash of 2010, the Knight Capital meltdown of 2012 and assorted outages at Bats, Nasdaq and other firms. If Wall Street thinks they can ignore Reg SCI after this NYSE event, they may be in for a surprise.
Step 4: Fragmentation is … Good!
Market participants bemoan the current fragmented market with its 11 exchanges and 40 some-odd dark pools and ATSs but today’s three-hour outage proved one thing: Fragmentation has its benefits. The shutdown of the leading U.S. marketplace did not send prices plummeting out of control and neither did it bring down any other trading venues. In the words of Spencer Mindlin, an analyst with Aite Group and occasional columnist for Traders, “smart order routers routed orders to markets and traders traded.” If one had followed the news solely on Twitter, you would have thought that entire market had stopped operating.
This did not happen.
Step 5: NYSE Regroups and Nasdaq Smiles
Just like the Nasdaq outage of 2012, it took a NYSE official nearly two hours to respond on camera about the on-going shutdown. Nasdaq, the NYSE’s chief competitor for issuing brand new IPOs, made sure that investors and trader knew that they were trading without incident. Usually this is NYSE’s role when Nasdaq faceplants due to a technical malfunction (i.e Facebook’s IPO debut). NYSE, going forward, will have to assure clients and future IPO candidates that today’s malfunction was a one-off occurrence and not a systemic calamity.
Outages happen and we will hear plenty about what may have caused NYSE’s woes. As of this writing, trading looks like it will resume this morning.
