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Nasdaq crash report singles out NYSE as cause of three-hour downtime Nasdaq crash report singles out NYSE as cause of three-hour downtime
(21 days later)
The Nasdaq stock exchange released the results of an internal review of the causes of its three-hour crash last week, and pointed the finger in part at rival NYSE Euronext.The Nasdaq stock exchange released the results of an internal review of the causes of its three-hour crash last week, and pointed the finger in part at rival NYSE Euronext.
Nasdaq called the 22 August crash "a confluence of unprecedented events" including alleged software failures both at the NYSE and within Nasdaq's own system that processes stock quotes. Nasdaq also apologized for the failures, saying "we are responsible for them, regret them, and intend to take all steps necessary to address them to enhance stability and functionality of the markets."Nasdaq called the 22 August crash "a confluence of unprecedented events" including alleged software failures both at the NYSE and within Nasdaq's own system that processes stock quotes. Nasdaq also apologized for the failures, saying "we are responsible for them, regret them, and intend to take all steps necessary to address them to enhance stability and functionality of the markets."
According to Nasdaq's account of events, the NYSE sent multiple requests to connect with the Nasdaq's quote system, only to disconnect rapidly. The rapid cycle of connection-and-disconnection from the NYSE amounted to 26 times the normal volume of stock quotes running through Nasdaq's system, it said.According to Nasdaq's account of events, the NYSE sent multiple requests to connect with the Nasdaq's quote system, only to disconnect rapidly. The rapid cycle of connection-and-disconnection from the NYSE amounted to 26 times the normal volume of stock quotes running through Nasdaq's system, it said.
The rapid speed of these connections then "revealed a latent flaw in the SIP's software code", Nasdaq said.The rapid speed of these connections then "revealed a latent flaw in the SIP's software code", Nasdaq said.
A spokesman for the NYSE declined to comment.A spokesman for the NYSE declined to comment.
The Nasdaq's version of events clarifies what CEO Bob Greifeld meant last week when he said "another player" was part of the crash.The Nasdaq's version of events clarifies what CEO Bob Greifeld meant last week when he said "another player" was part of the crash.
"I think where we have to get better is what I call defensive driving," Greifeld said last week. "Defensive driving means what do you do when another part of the ecosystem, another player, has some bad event that triggers something in your system?""I think where we have to get better is what I call defensive driving," Greifeld said last week. "Defensive driving means what do you do when another part of the ecosystem, another player, has some bad event that triggers something in your system?"
Other sources did not agree with Nasdaq's analysis about the NYSE, instead putting the emphasis on Nasdaq's own system.Other sources did not agree with Nasdaq's analysis about the NYSE, instead putting the emphasis on Nasdaq's own system.
A source familiar with the NYSE's systems questioned why Nasdaq did not cut off the NYSE's access to the quote system when the problem started. "They should have the ability to manage this by throttling our input, and certainly shouldn't melt down," the source said.A source familiar with the NYSE's systems questioned why Nasdaq did not cut off the NYSE's access to the quote system when the problem started. "They should have the ability to manage this by throttling our input, and certainly shouldn't melt down," the source said.
Eric Hunsader, a market structure expert and CEO of Nanex LLC, posted an independent analysis of the events in which he suggested the the problem started when the NYSE sent out "quote loops". He theorized that the NYSE sent out 50 minutes' worth of quotes in three seconds, then repeated the loop for stock quotes coming from each of the 13 exchanges.Eric Hunsader, a market structure expert and CEO of Nanex LLC, posted an independent analysis of the events in which he suggested the the problem started when the NYSE sent out "quote loops". He theorized that the NYSE sent out 50 minutes' worth of quotes in three seconds, then repeated the loop for stock quotes coming from each of the 13 exchanges.
Hunsader concluded that the core of the problem was in Nasdaq's own software. "[NYSE], and anyone external to [Nasdaq's stock quote processing system] could not have caused the quote bursts which probably led to Nasdaq deciding to shut down the SIP," Hunsader wrote.Hunsader concluded that the core of the problem was in Nasdaq's own software. "[NYSE], and anyone external to [Nasdaq's stock quote processing system] could not have caused the quote bursts which probably led to Nasdaq deciding to shut down the SIP," Hunsader wrote.
Sal Arnuk, a co-founder of Themis Trading in New Jersey, said that stock exchanges in the US have failed to keep up with the demands of ever-faster trading.Sal Arnuk, a co-founder of Themis Trading in New Jersey, said that stock exchanges in the US have failed to keep up with the demands of ever-faster trading.
"The plumbing and connectivity of our fragmented markets has been seriously flawed for years," Arnuk said, adding that "complex markets are problematic …now we all know that also rooted in this complexity are faulty design issues.""The plumbing and connectivity of our fragmented markets has been seriously flawed for years," Arnuk said, adding that "complex markets are problematic …now we all know that also rooted in this complexity are faulty design issues."
Nasdaq also called for an industry-wide examination of technology. "Other issues contributing to the halt are more endemic to technology issues across today's complex markets and will require a broader industry-wide effort to resolve," the exchange said today.Nasdaq also called for an industry-wide examination of technology. "Other issues contributing to the halt are more endemic to technology issues across today's complex markets and will require a broader industry-wide effort to resolve," the exchange said today.
The Securities and Exchange Commission is considering regulation that would require exchanges to submit to required examinations of their technology by regulatory experts. Currently, exchanges do that voluntarily.The Securities and Exchange Commission is considering regulation that would require exchanges to submit to required examinations of their technology by regulatory experts. Currently, exchanges do that voluntarily.
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