The New York Stock Exchange halted trading for 3-1/2 hours Wednesday because of a computer malfunction, forcing traders to route orders elsewhere in a drama that also highlighted the resilience of U.S. market structure.
The suspension, lasting from 11:32 a.m. to just after 3 p.m., dropped the largest U.S. share platform out of the network of trading systems that make up the American equity market. That network kept running, however, as exchanges such as the NASDAQ Stock Market and Bats Global Markets Inc. picked up the runoff.
“That’s one of the things to ponder from this, to see the robustness of how the system works when you knock out one critical component,” said Thomas Caldwell, chairman of Caldwell Securities Ltd. in Toronto. “We do have more than one exchange, and that means that if the major market is closed, the orders typically get rerouted to others.”
While rare, computer breakdowns have become a fact of life for American investors operating in markets that have sped up and spread out over the past 15 years due to technology advances and regulation. NYSE’s breakdown came two years after the NASDAQ Stock Market was forced to halt trading in its shares for three hours because of a broken price feed.
As of 3:14 p.m., shares had resumed trading on the New York Stock Exchange, the biggest of the company’s platforms, and NYSE MKT, the third-largest, according to data compiled by Bloomberg and an NYSE notice. Because stocks had been trading elsewhere, the NYSE was able to avoid having to reestablish its own prices through auctions.
The two NYSE venues affected by the shutdown handled about 14 percent of overall U.S. stock market volume in June, with the rest spread among competitors such as Bats and NASDAQ and among dozens of dark pools and other private platforms operated by securities firms.
Brokers were able to steer orders to buy and sell stocks, even those listed on NYSE, away from their home exchange on a day when concerns about China’s economy and Greece contributed to a 1.7-percent drop in the Standard & Poor’s 500 Index, the second-biggest decline since March.
The stock exchange operator said in a Twitter post that the issue is internal and not a “cyber breach.” The Securities and Exchange Commission is closely monitoring the situation, according to an e-mailed statement from Chair Mary Jo White.
“I don’t think it’s a hacking incident here or anything like that,” Joe Saluzzi, co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC, said by phone. “Based on what I’ve seen in the past, these type of things are usually some sort of issues related to an upgrade, maybe to handle the excessive traffic that’s constantly coming in with high-speed trading.”
While the NYSE’s rupture sowed anxiety and stirred memories of past breakdowns such as the May 2010 flash crash, it also highlighted benefits of a system where no one exchange handles more than 16 percent of transactions. Both NASDAQ and Bats said their venues were operating as normal during the outage.
“You can still execute NYSE stock,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee, during the halt. “Other venues are still available. Dark pools are still available,” he said. “If a client called up and wanted me to execute a trade I could still do it.”
The 223-year-old Big Board has seen its market dominance eroded by two decades of regulation aimed at breaking the grip once held by it and NASDAQ, which as recently as 2000 commanded almost all share volume. Rules such as 2007’s Regulation National Market System set out protocols under which dozens of all-electronic competitors sprung up to compete with the two venues.
NYSE’s halt Wednesday came after it sent a series of notices earlier in the day that, prior to the suspension, appeared routine. At 10:37 the unit of Intercontinental Exchange Inc. told traders that it had resolved an issue that may have prevented customers from receiving acknowledgement of orders submitted before 9:30 a.m.
At 11:04 a.m. it reported “a reported technical issue,” without elaborating.
The NYSE is one of 11 exchanges and more than 50 private venues where American stocks change hands. While today’s issue affected transactions on the company’s main market and impacted indexes derived from prices generated by that venue, investors could still buy and sell stock elsewhere.
The NYSE plays a dual role in the U.S. equity market, acting as a venue on which investors buy and sell shares and also in an administrative and listing capacity that oversees two of the three official price feeds for American stocks. Those feeds, known as Tape A and Tape B, continued to operate.
“For the most part the system is muddling along, relatively normally,” said Steve Sosnick, an equity risk manager at Timber Hill, the market-making unit of Greenwich, Connecticut-based Interactive Brokers Group Inc., said during the shutdown. “There’s no shortage of other places that are open and trading at this point.”
Sosnick said the firm was tweaking its order routing but beyond that “things are relatively normal.”
“We’re getting price information from other venues,” Sosnick said. “We haven’t come to a halt by any means and the options exchanges are up.”
A U.S. Department of Homeland Security official, who spoke on condition of anonymity, said there was no indication so far that the NYSE had been hacked.
While the halt recalled the August 2013 outage in NASDAQ-listed securities, when a ruptured price feed forced the exchange to stop trading in more than 2,000 listings for several hours, its immediate impact was not as great because trading continued today on other venues. That event caused SEC Chair White to call the heads of all the public equities exchanges to stress the importance of stability in U.S. markets.