Nasdaq Plans to Analyze Systems After Trading Outage

Nasdaq OMX Group Inc. is developing plans to better communicate with companies listed on its exchange and identify systems that need improvement after a technical malfunction halted trading last week, according to a letter sent to clients.

Nasdaq will be working with regulators, members of the exchange and partners to conduct a “thorough forensic analysis on what happened” and identify areas for improvement, according to the letter. It was sent by Bruce Aust, executive vice president of Nasdaq’s global corporate client group, and Robert McCooey, senior vice president of the global corporate client group, and obtained by Bloomberg News.

“It is clear that these systems could be more robust in their support of markets given the complex ecosystem in which we operate,” the letter said. “We are reviewing additional enhancements and potential design changes to further strengthen the SIP resiliency,” it said, referring to the securities industry processor, which runs the data feed of stock prices that are sent to other exchanges and trading firms.

Market Integrity

The three-hour shutdown of more than 3,300 Nasdaq-listed stocks and closure of its options exchanges was the latest in a series of failures to disrupt markets, prompting the Securities and Exchange Commission to push for rules requiring executives to boost the reliability of their technology. The disruption underscored how quickly the integrity of the U.S. market, which has a value of about $20 trillion, can be threatened as orders to buy and sell shares are matched on more than 50 exchanges and alternative electronic venues.

The cause of the outage was a disruption in the connectivity between an exchange participant and the SIP “which consumed and exhausted computing resources and eliminated the ability of the SIP to disseminate consolidated quotes and trades,” Nasdaq said in the letter.

A computer from NYSE Arca, NYSE Euronext’s all-electronic exchange, handling Nasdaq-listed stocks was the machine that had trouble connecting with the SIP, a person familiar with the situation, who asked not to be identified because they were not authorized to discuss the issue, said last week.

When market disruptions occur in the future, Nasdaq will open conference lines with chief executive officers, chief financial officers and other executives to update them on its systems, according to a report attached to the letter. Every company that lists with Nasdaq will be assigned a director on its market intelligence desk who will provide “a critical touch-point for daily market reports, timely trading analysis and market information,” the report said.

Twitter Alerts

Nasdaq said it will also use Twitter and other social media to communicate exchange-related information during unusual events as well as post updates on its websites every 15 minutes and send emails “promptly and at regular intervals during and after resolution,” the report said.

Robert Madden, a spokesman for Nasdaq, declined to comment on the report. Richard Adamonis, a spokesman for NYSE Euronext, also declined to comment.

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