Nasdaq's Investigation Continues After 'Flash Freeze'

Thursday evening, following the "flash freeze" of NASDAQ OMX, the electronic exchange issued a statement on the technical glitch that shut down the U.S. exchange's trading for three hours.

"Earlier this afternoon, NASDAQ OMX became aware that price quotes were not being disseminated by the Securities Industry Processor (SIP), which consolidates and disseminates all prices for the industry," reads the statement. "There was a connectivity issue between an exchange participant and the SIP, which led to degradation in the ability of the SIP to disseminate consolidated quotes and trades. The cause of the issue has been identified and addressed."

"Responding to the SIP issue, in order to protect the integrity of the markets, NASDAQ OMX issued a regulatory halt for all trading in NASDAQ-listed securities. In the first 30 minutes, technical issues with the SIP were resolved."

According to The Wall Street Journal, "Nasdaq officials internally pointed to a "connectivity" problem with rival NYSE Arca," but that Nasdaq's team should have been able to remedy the issue and avoid a halt in trading.

[Learn more about the glitch Nasdaq Resumes Trading After 'Flash Freeze' ]

The "flash freeze," an appropriately sensational title, lasted from just after noon EST though 3:25PM. The New York Stock Exchange halted the the trade of Nasdaq-based stocks as well as several dark pool platforms.

Some Dark pools reportedly continued to trade at the beginning of the crash, after other exchanges had received word to stop, because their electronic systems did not receive any automated halt orders from Nasdaq (as they do at the start and stop of each trading day), and had to be manually stopped by traders. Electronic halt orders came in at 2:08, two hours after the shutdown, according to New York broker Investment Technology Group in an interview with Wall Street Journal.

It remains to be seen what the trading losses from this snafu will total, but it bears remembering that Nasdaq's infamous Facebook IPO glitch last May resulted in more than $500 million in trading losses across major trading firms.

Digging for Answers

The Wall Street Journal reports Nasdaq's lack of readily available answers to the trading firms and frustrated public "sowed confusion across Wall Street." It certainly has done no favors for Nasdaq's reputation; it aims to be seen as the leader in delivering high-tech to the markets.

Nasdaq intends to thoroughly investigate the cause of the glitch, which is believed to revolve around the data feed supplying markets with trade information.

The U.S. Securities and Exchange Commission said it will also be closely monitoring the on-going Nasdaq trading freeze. The incident, which comes on the heels of the Goldman Sachs trading glitch on Tuesday, has also raised several questions about confidence in the systems running the market.

Wall Street Journal reminds us that the "SEC proposed new rules in March designed to guard against calamities brought on by haywire program trading." While exchanges have been denying the need for these regulations, recent events may erode their argument.

[Why is Goldman Sachs, suffering from trading glitches?]

Yesterday evening's statement from Nasdaq concluded: "NASDAQ OMX will work with other exchanges that are members of the SIP to investigate the issues of today, and we will support any necessary steps to enhance the platform." Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio