NYSE Tech Failure Underscores Vulnerability Of Financial Markets

Jul 9, 2015
Originally published on July 9, 2015 5:47 pm
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Transcript

RENEE MONTAGNE, HOST:

The New York Stock Exchange reopens this morning after a technical glitch shut down trading for nearly four hours yesterday. The incident had little effect on investors because the exchange was able to route trades through electronic markets. Still, the shutdown underscores how vulnerable the markets have become to technical failures. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Stock exchange officials decided to suspend trading at about 11:30 after finding what they called a configuration problem. They didn't reopen trading until a little after 3. Officials wouldn't elaborate about what had caused the shutdown, although NYSE president Tom Farley told CNBC it wasn't any kind of hacker.

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TOM FARLEY: We found what was wrong, and we fixed what was wrong, and we have no evidence whatsoever to suspect that it was external.

ZARROLI: Whatever the cause, damage was kept to a minimum and most trades went on as usual. Because the financial markets have become so fragmented, the New York Stock Exchange no longer dominates trading the way it once did. Eric Hunsader is CEO at Nanex, which sells market data to investors.

ERIC HUNSADER: The way our markets are set up, there are almost a dozen stock exchanges, you know, and the NYSE is less than 10 percent of trading activity. Really, the impact is small.

ZARROLI: And what trades the exchange does do could quickly be steered into one of the many electronic markets that have been opened in recent years. Charles Jones, professor of finance at Columbia Business School, says there's been a lot of debate about whether the proliferation of new trading venues is actually a good thing for investors.

CHARLES JONES: This doesn't answer the question, but certainly this is an upside to having lots of markets trading things is that there are alternatives when one goes down.

ZARROLI: But yesterday's incident illustrates how dependent the markets have become on technology and how vulnerable they are when it fails. There have been shutdowns before now. In August 2013, trading on the Nasdaq stock exchange was suspended altogether for three hours because of what was called a software bug. There are more market participants trying to trade on more venues, and they're trying to do it faster than ever. Again, NYSE president Tom Farley.

FARLEY: Our markets are complicated and complex, and therefore the systems are necessarily complicated and complex. And so you do have issues that arise from time to time.

ZARROLI: For the NYSE, yesterday's incident is a big embarrassment, and officials rushed to do damage control. They held several conference calls during the day with big investors and regulators, trying to keep them apprised of what was happening. Brad McMillan is chief investment officer at Commonwealth Financial Network. He says yesterday's shutdown could well harm the exchange.

BRAD MCMILLAN: If you are a trader, this is an inconvenience. Why would you go to the New York Stock Exchange if they're going to glitch? So it might hurt their business. That's possible.

ZARROLI: The Obama administration said it was satisfied there was no malice behind the incident, but the Securities and Exchange Commission said it was closely monitoring events yesterday. And the incident is certain to bring the exchange a lot more scrutiny from federal regulators. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.