Nasdaq Price Feed Upgrades Said Cleared Following Trading OutageSam Mamudi
The committee overseeing the price feed that spurred Nasdaq Stock Market’s three-hour shutdown in August approved changes today aimed at preventing another breakdown, according to a person briefed on the matter.
Operation of the securities information processor, or SIP, which malfunctioned and led Nasdaq OMX Group Inc. to freeze trading in its stocks will be shifted to a separate legal entity, said the person, who asked not be identified because the decision was private. The change was outlined in proposals brought by exchange executives to federal regulators in November to improve stability in the stock market.
More than 2,000 equities were halted and President Barack Obama was briefed on Aug. 22 when Nasdaq’s SIP, one of the two main conduits for price and order data in the U.S. market, was overloaded with messages and crashed. In response, Securities and Exchange Commission Chairman Mary Jo White called the heads of equity exchanges to Washington to discuss ways to minimize chances of a recurrence.
The modification adopted today is designed to focus accountability for the Nasdaq SIP on one entity that would have defined standards for running it, the person said. As a result of the vote, supervision of the Nasdaq’s SIP will resemble the structure used by IntercontinentalExchange Group Inc.’s NYSE unit, the person said.
The committee, made up of officials from equities exchanges and the Financial Industry Regulatory Authority, also approved proposals made by Nasdaq late last year to improve the SIP’s resiliency. Nasdaq OMX has given notice that it no longer wants to run the feed, a decision that means it is poised to end its oversight role late next year.
Among the suggestions approved by the committee were improvements to operational monitoring, an upgraded standalone test environment, and an expanded disaster recovery capacity. The person said the changes will take about two years to implement and will cost roughly 6 percent of the committee’s annual $123 million revenue.
Tom Knorring, chairman of the committee that runs the SIP, didn’t immediately reply to an e-mail seeking comment.