Apologies to TSCM on the repost. This is presented as a public service to the traders here, who obviously are being affected by the issue. Thank you TSCM for your understanding and use:
SelectNet Slowdown Affects Investors Big and Small
By Aaron L. Task
Senior Writer
11/9/99 9:19 PM ET
Luddites' Delight, Traders' Fright
SAN FRANCISCO -- After seven consecutive record closes, the fact the Nasdaq Composite Index (along with the other averages) fell today shouldn't be a shock. But in the afterglow of the Comp's latest run to glory come reports of problems within the exchange itself. Ironically, considering the Comp was built on the dazzling performance of tech stocks big and small (vs. say, rock and roll), the problems are technological in nature.
Specifically, I'm talking about SelectNet, an automated trading service that enables broker/dealers to trade with each other electronically. On Oct. 6, a "general slowdown" in the system affected three electronic communication networks, or ECNs, for several hours, resulting in their quotations being temporarily withdrawn, the Nasdaq-Amex said in a press release.
Nothing that serious has been reported of late, but traders say there's been a nettlesome increase of sluggishness in the system.
"It seems like there's a bottleneck at peak times -- the close, the open, the minute after the Fed announces" something, said Tim Grazioso, manager of Nasdaq trading at Cantor Fitzgerald."What ends up happening is we're not getting reports on a timely basis so you don't know your position. It's hard to trade."
Last Thursday, for example, traders said SelectNet was compromised for more than 20 minutes after the close, meaning it was unclear whether orders they'd placed had been executed. Yesterday, there was a window of more than five minutes at the open when SelectNet trades could not be verified, according to one market participant. Today, the period was down to 70 seconds, which is progress, but still an eternity for a system that's supposed to be instantaneous.
I know some of you are thinking, "So what? I can't short SelectNet or the Nasdaq itself, so what's the big whoop?" Well, despite the "democratization" of the market, investors (like you) still need the markets to work efficiently. If market makers, whose job is to ensure the "orderly" trading flow of individual stocks, are unable to feel confident about their own trades, you can be sure it will impact your orders. And while it may be a nuisance to not get "buy" orders done in a rising market, imagine how annoying it'd be if you couldn't get "sell" orders accomplished in a falling market, particularly one that's falling fast? (Not that I'm predicting it.)
Even "30-to-40 second delays compromise the ability of the market to offer investors the kind of liquidity they expect to get," said Kenneth Pasternak, president and CEO of Knight/Trimark Group (NITE:Nasdaq), one of the biggest over-the-counter market makers. "We've spoiled them. Particularly online accounts."
The SelectNet system has been "totally dysfunctional" around the opening and closing of trading "for a couple of weeks," Pasternak said, noting the problem "seems to be getting worse in the last week or so."
Not surprisingly, increased problems with SelectNet have coincided with a big jump in trading volumes. November 1999 has already produced five of the 10 busiest-ever trading days in Nasdaq history, including today's 1.46 billion shares -- the busiest day yet.
"Considering the enormous volume going through our system, they're performing well," Nasdaq spokesman Scott Peterson said, adding that the exchange is "never resting on our laurels and continuing to work on our system."
Nasdaq's network has the capacity to handle 4 billion shares in a day, he said. However, critics note the issue isn't total shares over the course of a day, but the inability of SelectNet to handle peak periods within a given session.
Meanwhile, Peterson noted that the Nasdaq has been running on its backup trading system in Rockville, Md., this week, so that system can be checked and so the main center in Trumbull, Conn., can be readied for an upcoming upgrade to the "larger, higher-speed processors" of the Unisys (UIS:NYSE) 6800 system.
The backup system already has the Unisys system and while there was "some sluggishness" this morning, "we're proud of the fact the backup system can run without any real problems," the spokesman said.
Hey Joshua, Nice Horn
Most traders said the slowness of the SelectNet system is frustrating but not overly concerning. And maybe they're just touting the party line or unwilling to speak out against their regulator, but they also expressed faith the Nasdaq will take the necessary steps to improve the system's functionality.
But Tony Cecin, manager of Nasdaq trading at U.S. Bancorp Piper Jaffray, said the problem is far more serious and took umbrage with the exchange's explanation.
"The fact we've got record volume is not an answer," Cecin said. "The systems are straining at capacity and we all know what happens when something strains at capacity long enough." (Hint, it ain't good.)
"The problems are systemic. I believe they verge on being serious and are costing the market-making community tons of money," he continued. "And it's a problem that Nasdaq refuses to respond to quickly enough by allocating resources back from the marketing effort and applying them to keeping the system going."
As for his peers and Nasdaq saying the problem is not particularly troublesome, the trader was wonderfully unfazed: "OK, we disagree," he said.
Cecin was unable (or unwilling) to name specific instances where he's lost money because of SelectNet's lethargy, but said it's a potential threat to every order his desk gets.
The system is "either working or it's not, and if it's not working it's costing me money," he said.
And, by extension, potentially costing you money as well.
|
