Nasdaq outage causes trading chaos
Russell rebalancing hit, ECN volume surges
By Deborah Adamson & Jenny Spitz, CBS.MarketWatch.com
Last Update: 7:19 PM ET June 29, 2001
NEW YORK (CBS.MW) - A second day of technical outages at the Nasdaq Stock Market wreaked havoc on Wall Street Friday after a string of glitches disrupted trading on the final day of the quarter.
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Nasdaq said it suspended trading at 2:30 p.m. Eastern after an employee at WorldCom (WCOM: news, msgs, alerts) , which operates its communications lines, inadvertently brought down its Small-Order Execution System and SelectNet system.
SelectNet was restored after more than an hour and trading was extended for 60 minutes, but Nasdaq cancelled its after-hours session and instead rerouted orders to other exchanges, such as Island and Instinet, causing a surge in trading on those markets. See related story.
The glitches disrupted trading on one of the busiest days of the year, as fund managers sought to change their portfolios on the last day of the quarter and the Russell stock indexes had their annual re-balancing.
"It's a lousy day for this to happen," said Nasdaq CEO Hardwick Simmons. "The difficult part about this particular Friday is that it's Russell rebalancing day."
When the Russell indexes change, fund managers whose funds mirror those indexes are forced to buy and sell shares to match their portfolios. The Nasdaq delay could complicate the Russell rebalancing situation on Monday if positions are not unwound by the indexers at consistent prices Friday night.
A Securities and Exchange Commission spokeswoman said the agency is in touch with the proper authorities, gathering information and monitoring the situation. Last year, the SEC looked into delays and outages at online brokers -- where technical glitches frustrated investors or cost them money.
WorldCom said in a statement that the outage happened during "routine testing of a development system" for Nasdaq and that it is continuing its investigation. Chief Executive Bernard Ebbers said the company "very much regrets" the outage.
Technical glitch
Simmons said Friday's outage is not related to Thursday's systems problem, when the Nasdaq had to shut down the SelectNet and SOES systems after they began to experience " intermittent problems" with quotes.
Thursday's system halts happened at about 3 p.m., when the market was experiencing heavy volume because of the reopening of trading in Microsoft (MSFT: news, msgs, alerts) .
Trading in the stock was halted pending news that a federal appeals court had set aside the proposed breakup of the software giant.
The shutdown Friday caused a surge in trading on other electronic communications networks, or ECNs, as the Nasdaq directed trading to markets like Island and Instinet. A spokesman for Instinet said trading was up about 40 percent on Friday, led by volume in the big technology companies such as Oracle (ORCL: news, msgs, alerts) and Cisco (CSCO: news, msgs, alerts) .
Island spokesman said a kind of "hybrid" type of after-hours trading began as during regular-trading hours, as Nasdaq investors swarmed to the exchange to complete trades.
The disruptions spread to other exchanges as well.
The Chicago Board Options Exchange closed down as usual at 3:05 p.m. Central, but no one could leave until the CBOE could coordinate the theoretical close for new quotes with that of the Chicago Mercantile Exchange -- after trading ended for the day.
By 4 p.m. Central --again, as usual -- the big overhead lights of the floor were off, leaving waiting and impatient traders dependent on the lights of computer screens. Forget about long-distance calls to the home office in New York: Access is shut off every day at 4 p.m.
"The trickle down effect of this is big," said William Nauss, post director for CBOE. "When they changed the trading times on the Exchange, everyone had to wait.
"We just stood here."
The waiting was made worse because besides the standard end-of-the day closes, CBOE needed to reconcile with end-of-the month and end-of-the-quarter closings.
"It's never good to have markets disjointed," Nauss said.
Dan Greeneberg, a trader based in San Francisco, said the Nasdaq outage didn't affect him personally but slowed the markets down.
"There was a bit of a rally going on," he said. "It may have killed a little of the rally."
Deborah Adamson is a reporter for CBS.MarketWatch.com in Los Angeles.
Jenny Spitz is headline editor for CBS.MarketWatch.com in San Francisco. |
