Market Data Glitch Pushes Nasdaq To Address Losses

Thanks to a technical glitch with its market data feed that caused a trading outage for more than 80 securities on Monday, Nasdaq OMX Group execs are in talks with major market-making firms to resolve whether the exchange should repay trading firms for any losses.

The Wall Street Journal reports that "trading in more than 80 securities was halted early Monday after one of Nasdaq's algorithms fed incorrect quotes to market makers. On Wednesday, Nasdaq acknowledged the halts were "caused solely by a Nasdaq malfunction," which resulted in the release of "invalid and stale market data" in the first half hour of trading."

According to the WSJ, the glitch may have been caused by the Nasdaq quoting system's failure to correctly account for the three-day weekend. Exchanges quickly agreed on Monday to cancel all trades that were 30 percent above or below a benchmark price. Trades that occurred within 30 percent of the benchmark price were allowed to stand.

Market participants said Nasdaq's market makers suffered significant losses when some trades triggered by the erroneous data were not canceled.

"Our traders know what happened," says Eric Noll, Nasdaq's executive vice president of transaction services, in the WSJ report.

Although there is never a good time for a technology glitch at an exchange -- or in this case, a market maker -- this is rather embarrassing for Nasdaq. Not only is this the start of earnings seasons but the market maker is making a strong bid for merging or acquiring the New York Stock Exchange.

The firms are especially unhappy. "They were upset and up in arms," Joseph Cangemi, chairman of the Security Traders Association, said of market makers. "The problem was that an event that began to take place at 9:28 in the morning that obviously was corrected functionally by 10:02, we did not get a regulatory halt message to the industry indicating the breaking of trades until after 2 p.m."

Traders were unsure of their liability for much of the session, he tells the WSJ.

"It's not that you're going to prevent every mistake from ever happening, but you need to act quickly on it so people have as limited risk as possible," Cangemi says. Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio