Glitch Disrupts Nasdaq
Computer tech blamed,
doubts cast on p.m. trading
By NANCY DILLON and JUDITH SCHOOLMAN
Daily News Business Writers
computer snafu brought the Nasdaq to a screeching halt on one of the busiest trading days and threw into doubt whether any trades yesterday afternoon were accurate.
The computer failure prompted the country's second-largest exchange to extend trading for an hour — for the first time in Wall Street history — and to cancel after-hours transactions.
Nasdaq officials said yesterday's breakdown, the second in two days, was caused by a technician with communications giant WorldCom. The glitch left traders questioning the reliability of many stock quotations and mutual fund values.
"This was the most unbelievable series of events that I've ever seen," said Kathy Taylor, assistant manager of Nasdaq trading at A.G. Edwards & Sons.
"There were orders executed 30 points away from real market value," she said. "I wouldn't be surprised if someone, maybe the Securities and Exchange Commission, came back and canceled everything."
A Nasdaq spokesman said yesterday's debacle "was unrelated to system capacity. ... Human beings make mistakes."
The New York Stock Exchange experienced no problems yesterday and posted the fourth-largest volume in history.
The Nasdaq's SelectNet system, which links brokers, and the Small Order Execution System took a dive, making it all but impossible at times to get a reliable price for shares and difficult to buy and sell.
SelectNet was suspended at 2:30 p.m., and the small orders system was shut about a minute later. Efforts to restart both networks about 4 p.m. failed.
"It was hard to trade between 2:30 to 4 p.m. It was impossible between 4 and 5," said Mary Burnes, head of Nasdaq trading at Edward Jones brokerage.
Before the glitch, trading had been especially brisk, as several events converged.
It was the end of the second quarter, when many mutual funds and other large investors settle their accounts.
Also, it was the one day when annual changes in the closely tracked Russell indexes are recalculated. Some 70% of the 3,000 stocks in the small-cap Russell 2000 Index and the large-cap Russell 1000 Index trade on Nasdaq.
On Thursday, a problem unrelated to yesterday's glitch halted trading for 20 minutes.
The SEC, which oversees stock trading on all exchanges, was unavailable for comment on both days' events.
Market halts for minutes or even hours are common because of technical problems or even national periods of mourning.
But Paul Hickey, an analyst at Birinyi Associates, said something was amiss even when the problem supposedly was fixed.
"Bids were higher than offers. This isn't right," he said, referring to the trading ranges posted for each stock.
"It's a real mess," said Edward Schmitz, director of Nasdaq trading at Gerard Klauer Mattison. "The majority of customers went home at 4 o'clock, so was a lot thinner and more volatile than usual."
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