Nasdaq OMX has blamed a software fault for its recent trading interruption, as its systems failed to deal with a 26-fold increase in the number of messages received from the New York Stock Exchange’s (NYSE) Arca system.
Following a preliminary internal review, Nasdaq OMX stated that an “unprecedented volume of message traffic” was partly responsible for the failure of the Securities Information Processor (SIP) data processing system, which led to trading on the exchange being halted for three hours.
Nasdaq OMX revealed that on 22 August the SIP system, typically capable of processing up to 10,000 orders per port each second, received 26,000 quote updates per port from NYSE’s Arca system as it attempted to reconnect to the SIP. In comparison, a typical day would see Nasdaq receiving approximately 1,000 messages from Arca.
The deluge of messages exceeded SIP’s planned capacity, and, according to Nasdaq OMX, revealed a “latent flaw” in the system’s software code which prevented backup capabilities built into SIP from coming online. Due to the inability to correctly process quotes, Nasdaq bosses took the decision to halt trading in order to prevent ‘information asymmetry’ and ensure equal market conditions.
While the three-hour 'Flash Freeze' outage did not result in cancelled orders or have a significant impact on stock prices, the fault led to critcisms that software systems used in trading markets need to be improved in order to avoid continued outages on markets, following a wave of recent trading system problems.
Following the halt to trading, US Securities and Exchange Commission (SEC) also pledged to tighten controls on trading systems as part of a consultation currently being undertaken.
In a statement, Nasdaq OMX said that it would strive to ensure that its technology infrastructure is improved following the recent fault.
“Nasdaq OMX is deeply disappointed in the events of August 22 and our performance is unacceptable to our members, issuers and the investing public. While getting to 100% performance in all of our activities, including our technology is difficult – it is our objective.”
“Nasdaq OMX is committed to enhancing our systems and is actively engaging with customers, partners and stakeholders to strengthen the infrastructure that supports our markets.”
The company also stated that a “broader industry-wide effort” was needed to tackle the wider technological issues in complex trading markets.