Exclusive: Nasdaq, NYSE at odds on outage cause as SEC seeks facts

Tue Aug 27, 2013 12:10am EDT
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By John McCrank and Angela Moon

NEW YORK (Reuters) - U.S. regulators have asked Nasdaq OMX Group (NDAQ.O: Quote) and NYSE Euronext NYX.N to come up with a timeline of Thursday's three-hour trading disruption, but the rival exchange operators have been unable to agree on the details, according to several sources familiar with the situation on Monday.

Five days after a glitch that paralyzed Nasdaq-listed stocks for three hours on all U.S. markets, Nasdaq and NYSE have a different understanding of what happened in the period preceding and during the blackout, with each side blaming the other for the outage, according to the sources.

At the center of the disagreement is the role of Arca, NYSE's fully electronic stock market. The blackout, which saw trading in about 3,200 Nasdaq-listed stocks such as Apple Inc (AAPL.O: Quote), Google Inc (GOOG.O: Quote) and Facebook Inc (FB.O: Quote) grind to a halt, was preceded by connectivity problems between Arca and the Nasdaq-operated Securities Information Processor (SIP). The SIP consolidates stock prices and distributes them to the market.

What's not clear is whether the problem at the SIP was caused by issues at Arca or technical flaws at the processor.

The inability of the two largest U.S. stock markets to come to a common understanding on what caused one of the worst market disruptions in recent memory underscores the complexity of the highly fragmented market and the difficulty of preventing future glitches. It could further damage investor confidence in markets, which have been roiled by a succession of high-profile technical glitches in recent years.

Much is at stake for the two exchange operators. Nasdaq and NYSE have a lock on the U.S. primary listings business and compete fiercely to woo companies to list on their respective markets. Major market debuts - Wall Street watchers have been tweeting about the possibility of a Twitter IPO for months - are huge public relations boons for exchanges.


The exchange operators are also coming under more pressure from rivals. On Monday, BATS Global Markets and Direct Edge said they would merge, in a deal that would vault the new company ahead of Nasdaq in U.S. stock trading. NYSE, which is being taken over by IntercontinentalExchange (ICE.N: Quote), is the No. 1 U.S. stock exchange operator.   Continued...

A man stands next to the Nasdaq MarketSite in New York, August 23, 2013. REUTERS/Brendan McDermid