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NEW YORK (Reuters) - Trading in thousands of U.S. stocks ground to a halt for much of Thursday after an unexplained technological problem shut down trading in Nasdaq securities, the latest prominent disruption to the operations of U.S. markets.
Nasdaq resumed trading at around 3:25 p.m. EDT (1925 GMT), after a 3-hour, 11-minute shutdown of trading in such familiar names as Apple Inc, Facebook Inc, Google Inc, Microsoft Corp and about 3,200 other companies.
The shutdown was the longest in recent memory, and prompted U.S. Securities and Exchange Commission Chair Mary Jo White to call for a meeting of Wall Street leaders to help insure the "continuous and orderly" functioning of securities markets.
"Any brokerage firm gets paid by executing orders," said Sal Arnuk, co-head of equity trading at Themis Trading in Chatham, New Jersey. "So yes, we are frustrated, and this hurts us, it hurts the market and it hurts public confidence."
Late on Thursday, Nasdaq's parent Nasdaq OMX Group Inc said it halted trading after learning that the Securities Information Processor, or SIP, which consolidates stock prices, was not disseminating price quotations.
It said a "connectivity issue" between an unnamed exchange participant and the SIP caused the breakdown, and that the cause has been "identified and addressed."
Nasdaq also said technical issues were resolved within 30 minutes and that it worked with other exchanges, regulators and market participants to ensure an orderly resumption of trading.
"NASDAQ OMX will work with other exchanges that are members of the SIP to investigate the issues of today, and we will support any necessary steps to enhance the platform," it said.
The problems surfaced at 12:14:03 p.m. (1614 GMT), when all traffic through Nasdaq stopped abruptly.
During the shutdown, trading of shares not listed on Nasdaq continued, but transactions could not be executed on the Nasdaq platform. Options trading was also halted.
"I can't remember this happening in recent memory," said Christopher Nagy, president of consultancy firm KOR Trading and a former head of trading at TD Ameritrade.
Trading in one stock resumed at 3 p.m., and even after broader trading resumed, some difficulties persisted, and Nasdaq said it stopped routing orders to the New York Stock Exchange's all-electronic ARCA platform shortly after the resumption.
Nasdaq's own stock, which was up 0.8 percent before the halt, closed down 3.4 percent, after earlier trading down as much as 5.4 percent. Meanwhile, the Nasdaq index itself closed up 1.1 percent, higher than where it was before the halt.
"The fact we didn't see a larger dip on today's mess shows most investors are, for better or worse, becoming more comfortable with these mistakes," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
During the shutdown, Nasdaq sent a series of alerts advising clients and traders about the scope of the outage, and later, its plans to resume trading.
Wall Street banks spent the period translating the messages to clients, who were at first panicked, and later frustrated, over how and whether their trades would be processed.
Three sources at banks and brokerages who declined to be identified said trading desks were advising Nasdaq not to rush to reopen, fearing that further technical errors could sap even more confidence from rattled markets.
"The general feedback given to Nasdaq was, 'Don't rush back to fix it, it will be 10 times worse to come back online in a rush than to take time and get it right,'" said one source.
White House spokesman Josh Earnest said President Barack Obama had been briefed about the disruption.
U.S. Treasury Secretary Jack Lew said at a Mountain View, California, event that regulators did not have all the facts, and have been aggressive in addressing cyber security concerns. "Sometimes there are just system failures," Lew said.
White said it is "critically important" to the financial system and investor confidence that securities markets function normally.
Thursday's outage, while resolved before the market close, "was nonetheless serious and should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants," she said.
Nasdaq and the larger NYSE, which is owned by NYSE Euronext, said all trades executed from 12:14:03 to 12:23:31 p.m. would stand.
"As we continue to eliminate human beings from the execution of security trading," said Stephen Massocca, managing director of Wedbush Equity Management LLC in San Francisco, "these events are going to take place, given the level of automation."
The outage was the latest black eye for Nasdaq, which in May agreed to pay $10 million, the largest penalty ever against a stock exchange, to settle SEC civil charges over its mishandling of Facebook's initial public offering.
James Angel, a Georgetown University finance professor who sits on the board of rival exchange operator Direct Edge, said Nasdaq appeared to take steps to ensure that trading reopen in an orderly fashion and with correct pricing.
"We can live with the market being closed for a little bit, but we can't live with bad pricing," he said. "It's far better to have the market shut down and take its time re-opening, than to have what happened with the Facebook incident... It looks like they've learned their lesson."
William Lefkowitz, options strategist at National Securities in New York, said options trading in such companies as International Business Machines Corp dried up during the halt. But he said the reopening was "very orderly and liquidity is back to normal. It is almost like it did not happen."
Thursday's outage was the latest high-profile glitch in U.S. stock markets.
On Tuesday, a technical problem at Goldman Sachs Group Inc resulted in a flood of erroneous orders in U.S. equity options markets.
Two weeks earlier, on August 6, stock exchange operator BATS Global Markets faced a nearly hour-long outage.
Meanwhile, a 2012 trading blowup at Knight Capital Group Inc was a contributing factor to the eventual sale of that company.
Other trading venues were also affected by Thursday's outage. Several "dark pools," which execute orders anonymously, were forced to stop trading, several market participants said.
Thursday's outage could cause further problems for Nasdaq at the SEC, which has cracked down on stock exchanges to beef up their compliance with regulations and police themselves better.
White, who joined the regulator in April, is a Nasdaq veteran, having served on its board as recently as 2006.
Two months after White joined the SEC, the Chicago Board Options Exchange was ordered to pay $6 million to settle SEC charges that it failed to properly enforce short sale rules.
Meanwhile, the NYSE last year became the first exchange in SEC history to face a financial penalty after it supposedly gave some customers an "improper head start" on trading information.
In March, as a response to problems such as the Facebook IPO and Knight Capital, the SEC proposed rules to require exchanges and other trading platforms to be better prepared to handle market disruptions, including those caused by technology glitches. Those reforms are still out for public comment.
Additional reporting by Samuel Forgione, Lauren Tara LaCapra, Herbert Lash and Ryan Vlastelica in New York,; Sarah N. Lynch in Washington, D.C., Doris Frankel in Chicago, Jim Christie in Mountain View, California, and Hezron Selvi in Bangalore; Writing by Dan Burns and Jonathan Stempel; Editing by Nick Zieminski, Andre Grenon, Kenneth Barry and Dan Grebler