Nasdaq reports trading glitch

The problem on Wednesday led to incorrect closing prices for some stocks

A technical glitch at the Nasdaq Stock Market on Wednesday led to incorrect closing prices for a number of New York Stock Exchange-listed stocks traded through Nasdaq.

Nasdaq said in a statement that it experienced "several problems" with its trade reporting interface to the Securities Industry Automation Corp. (SIAC) Wednesday afternoon and evening.

SIAC is an electronic system that disseminates market data and runs computer trading systems. It is two-thirds owned by the New York Stock Exchange (NYSE) and one-third owned by the American Stock Exchange.

As a result of the problem, Nasdaq said the companies had incorrect consolidated closing price data for NYSE and American Stock Exchange-listed stocks for that day, Nasdaq said in a statement. "At 3:39 p.m., EST, on Wed., Jan. 18, Nasdaq experienced a technical issue with its trade reporting interface to the Securities Industry Automation Corporation. Due to the problem, SIAC rejected approximately 81,000 Nasdaq trade transactions in New York Stock Exchange- (NYSE), American Stock Exchange, and Archipelago Exchange listed issues reported after 3:39 p.m."

Later in that same day, at 5:50 p.m., EST, Nasdaq had a second problem with its SIAC interface. Nasdaq said it resubmitted 16,669 trade transactions from the morning hours, but because most of those transactions were sent with a "regular sale condition modifier," SIAC calculated bad consolidated last sale data for about 1,500 securities.

Nasdaq officials declined to offer any additional details about what happened.

NYSE officials said in a statement that investors and customers should use NYSE-only closing prices for all NYSE-listed stocks for that trading day. All NYSE-only closing prices from Wednesday were correct, it said.

"What apparently happened was that they had some trouble with their trading of listed securities over Nasdaq and for whatever reason the volume of activity created technology challenges for them," said Larry Tabb, an analyst at The Tabb Group in Westboro, Mass. "For whatever reason, they had a technology problem.... That problem could have occurred by moving [new technology] into production that morning, or they had an emergency and moved [some new technology] into production during the day that shouldn't have been moved, or [maybe] an errant transaction just blew them out of the water.

"It means that for whatever reason they had a problem with the SIAC feed -- and that means that all of their trade reporting at that time basically stopped," Tabb said.

When Nasdaq restarted everything late in the day, it resent the whole trading file instead of culling out all of the transactions broadcast Wednesday morning, he said. "What they did was just resubmit everything, and because they just resubmit everything in original format SIAC didn't know that these transactions were duplicates. Because of that, [SIAC] picked them up as live transactions which then got distributed around the street, which then confused people even more," Tabb said.

"So what Nasdaq is saying is that you should back all these errant transactions out of any historical databases, out of any historical files, any calculations of average price, all the last time and sale information. So Nasdaq is basically saying, ¿We messed up and now it's your problem to try and fix.'"

The glitch came on the same day that a flood of sell orders forced the Tokyo stock exchange to close early after the volume of trades threatened to overwhelm that exchange's computer system (see "Rapid jump in ¿net trading seen behind Tokyo's woes"). The Tokyo exchange has been hit by a series of system problems in recent months, including a glitch that halted business for almost a full day late last year.

Wednesday's early close in Tokyo was the first time the exchange was forced to halt trading due to capacity constraints since it opened under its current incarnation in 1949. \

Reuters contributed to this report.

Copyright © 2006 IDG Communications, Inc.

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