SEC talks on Nasdaq failure to focus on backing up system

Wed Sep 11, 2013 3:03pm EDT
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By Herbert Lash and John McCrank

NEW YORK (Reuters) - Federal regulators and stock exchange executives are likely to focus on the stock quotes processor behind Nasdaq's trading halt last month, but a quick resolution of system outages or market weak spots at the meeting on Thursday is unlikely.

Mary Jo White, chairwoman of the Securities and Exchange Commission, scheduled the meeting two weeks ago to address the "securities information processor" (SIP), whose malfunction shut down trading in Nasdaq stocks for three hours on August 22.

The outage was the latest of recent technological failures to hit the U.S. stock market. While none were related, they have raised questions about the system's fragility and the risks they pose.

A potential solution to the outage - and what regulators call the single point of failure - is to create redundancy by having exchange operators Nasdaq OMX Group Inc and NYSE Euronext distribute each other's data to act as a back-up.

A software bug that clogged the processing of stock quotes from 13 exchanges put the spotlight on a little-known area that is a choke point for the U.S. stock market.

The idea that Nasdaq's data could be distributed via NYSE's processor and vice versa has been discussed within the industry, said Jamie Selway, a managing director at brokerage ITG, which also operates the Posit alternative trading platform.

"That's a feasible option. We've heard that from a few places," Selway said. "I think it's the most likely path."

One obstacle to this solution is that the coding of the two SIP systems is different.   Continued...

Construction crew work outside the Nasdaq MarketSite in New York's Times Square, August 23, 2013. REUTERS/Andrew Kelly