By Dow Jones Business News, November 01, 2013, 11:45:00 AM EDT
Nasdaq Options Market Halted Through Close
Nasdaq OMX Group Inc.'s ( NDAQ ) second systems-breakdown this week--a halt in trading at one of its options markets
Friday--will persist through the end of the trading day, the latest in a number of outages at U.S. exchanges.
Nasdaq stopped trading on its Nasdaq Options Market, known as NOM, at 10:56 a.m. EDT after a "significant increase" in
orders hindered the market's ability to accept orders and provide price quotes, according to a statement from the
Overall options industry trading volume was light Friday, with trading running about 13% below average, according to
options-data firm Trade Alert. A Nasdaq spokesman declined to elaborate on the volume issue.
During the outage, Nasdaq issued regular alerts notifying traders it was "currently working to resolve the system
issues .. ." But shortly after 2 p.m. EDT, Nasdaq OMX released a statement saying NOM would remain closed through the
market close. All open orders on the exchange will be cancelled, Nasdaq said.
The episode deepened questions about the ability of exchanges to respond to technology failures as well as the
increased reliance on such systems.
"This brings up questions of how Nasdaq handles failover and disaster recovery," said Robert Stowsky, senior analyst
at research firm Aite Group. "Software testing has been given short shrift in the industry for a long time and signs of
that are starting to show."
Others point out the difficulty of testing for every situation, especially as trading strategies rapidly evolve and
become increasingly complex. Andy Nybo, head of derivatives research at TABB Group, which studies exchanges, said it is
difficult to be fully prepared for how new, sophisticated trading strategies will affect existing market infrastructure.
Nonetheless, the effect on individual investors is minimal, said Paul Jiganti, managing director of market structure
at TD Ameritrade, with investors able to route orders to other options exchanges. Still, he said, the outage is "
embarrassing to an extent and isn't good for the individual business."
Mr. Stowsky from Aite Group said the ability to continue trading on other markets might be the only benefit of an
increasingly complex and fragmented market.
Nasdaq's latest issue affected a portion of ticker symbols, according to the statement. Prior to the breakdown, a
trader notice said the NOM was experiencing problems in options on stocks with tickers beginning with letters A through
The NOM is one of three options markets owned by Nasdaq OMX. The other two are BX Options and the Philadelphia-based
PHLX. NOM is the second largest of the three, handling 8.1% of industry trading volume in October. That makes it the
sixth-largest of 12 U.S. options exchanges.
Nasdaq OMX's other two options exchanges were operating normally Friday, as was the exchange operator's equities
The breakdown wasn't linked to high-frequency trading or orders from any one customer, according to a person familiar
with the technology problem. The NOM systems hadn't undergone any system updates this week, according to the person.
A spokesman for the Securities and Exchange Commission declined to comment.
This was the second issue at Nasdaq this week. On Tuesday, the widely tracked Nasdaq Composite, and other Nasdaq
indexes, froze for the better part of an hour after Nasdaq experienced problems transmitting data for the market gauges.
Exchange officials blamed Tuesday's index outage on human error rather than a computer glitch.
In August, a breakdown in the baseline data feed for securities listed on the Nasdaq Stock Market froze trading in
those stocks for three hours, and a similar, much shorter outage followed a week later.
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