Friday June 29, 6:59 pm Eastern Time
Nasdaq systems fail for second straight day
(UPDATE: Changes first paragraph, adds details)
By Mark Weinraub
NEW YORK, June 29 (Reuters) - Computer glitches on Friday afternoon forced an embarrassing outage on Nasdaq for the second straight day and caused the No. 2 U.S. stock market to extend trading by one hour, sending ripples through trading desks across the nation.
It was a tough week for Nasdaq, home to many of the world's top technology firms. The symbol for the tech stock boom and bust announced on Wednesday it would cut about 10 percent of its work force, and on Thursday suffered an 18-minute outage caused by system failures.
The latest outage took place amid heavy share volume on the last trading day of the quarter. Many money managers use that day for ``window dressing'' -- buying winning stocks and dumping losers -- so they look smart when their funds disclose their holdings to investors.
``The bad news is that it's happening at the end of the quarter,'' said Frank Gretz, a market analyst for investment firm Shields & Co. ``A lot of people make changes at the end of the quarter, large investors and portfolio managers. It may have an impact on them.''
The outage crippled Nasdaq's network that processes orders from its share dealers, which is operated by telecom company WorldCom Inc. (NasdaqNM:WCOM - news). The problems started when a WorldCom employee ran a test on the network, Nasdaq chief executive Hardwick Simmons told Reuters Television.
That brought the system down and also caused a glitch that prevented technicians from restoring the network, Simmons said. WorldCom's Chief Executive Bernard Ebbers in a statement said the company regretted the error and was taking steps it wouldn't happen again.
EXTENDED TRADING
Nasdaq suspended trading on its SOES and SelectNet stock order routing systems from 2.31 p.m. EDT (1831 GMT) to 3.33 P.M. EDT (1933 GMT). The exchange then extended trading until 5 p.m. EDT (21.00 GMT). Officials at Nasdaq could not remember if the trading day had ever been extended before.
The glitches reverberated across the nation's exchanges and trading desks. Chicago options and futures exchanges extended trading, and the main U.S. stock market indices, including the Dow Jones industrial average (^DJI - news), kept ticking past their regular 4 p.m. (16.00 GMT) close. The American Stock Exchange extended its normal trading hours by one hour for some options and exchange-traded funds.
But the New York Stock Exchange, which suffered an embarrassing trading outage caused by a software failure exactly three weeks ago, closed at its usual 4 p.m. time. Volume was high at the Big Board -- 1.7 billion shares changed hands, about 70 percent more than average.
Trading was fast and furious in the extended Nasdaq trading session.
``There are market makers who are not seeing their quotes and so it's not anything like a normal environment,'' said Matthew Johnson, head of U.S. cash trading at Lehman Brothers. ``It's organized chaos, but it's very chaotic.''
Nasdaq stocks, such as Dow component Intel Corp. (NasdaqNM:INTC - news), could still be traded on alternative trading systems such as electronic communications networks (ECNs), but investors could not access the share dealers -- called market makers -- who handle the highest volume.
ALTERNATIVE TRADING VOLUME SOARS
Volume on most alternative trading networks surged as traders scrambled to find ways to fill their stock orders.
Nearly 160 million shares changed hands on the Archipelago ECN compared to its average daily volume of 120 million to 130 million. No. 1 ECN Instinet Group (NasdaqNM:INET - news), which is majority owned by Reuters Group Plc (quote from Yahoo! UK & Ireland: RTR.L), reported a 40 percent surge in volume, but its rival Island ECN was running at normal levels.
Nasdaq's problems made it impossible to calculate the level of other major indices because Nasdaq stocks make up portions of these gauges of U.S. stock health.
On Thursday, Nasdaq was forced to shut down its systems after traders reported problems entering price quotes shortly after trading in Microsoft Corp. (NasdaqNM:MSFT - news) resumed and volume surged following a more-than three-hour halt. Nasdaq shut down its SelectNet and SOES stock trading systems at 3:02 p.m. EDT (1902 GMT) Thursday. The quote systems were fixed by 3:06 p.m., and trading was restarted at 3:20 p.m.
Nasdaq, which trades around 2 billion shares a day on average, recently has encountered problems with its trading systems, including a SelectNet failure earlier in June. The system also went down for about 15 minutes in March, and a handful of erroneous trades entered into the system in February, causing the Nasdaq Composite Index (^IXIC - news) to falsely spike up 14 percent.
Nasdaq's new trading system, nicknamed SuperSOES, is scheduled to be implemented on July 8. SuperSOES, which Nasdaq has said has performed well in testing, enables traders to process more trades automatically.
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