NYSE Group sowed confusion among traders after a technical error hobbled one of its exchanges on Monday.
NYSE Arca, the largest US listing venue for exchange-traded funds, shifted to backup methods for calculating the closing prices for most securities, according to a series of trader alerts. The exchange closed early for its after-hours session, saying it would not resume trading until 4am New York time yesterday.
Kristen Kaus, a spokeswoman for NYSE, declined to comment beyond the trader alerts.
While high-profile exchange malfunctions are becoming rarer on the US$27 trillion US stock market, Monday’s fault highlights the importance of closing auctions, which have assumed a bigger role with the growth of passive investing.
Out of 1,230 Arca-listed securities, only 53 were closed through the normal auction-drive method. Those that were not included the US$237 billion SPDR S&P 500 ETF and the US$33 billion SPDR Gold Shares ETF, two of the largest exchange-traded funds in the world.
“One could argue the role of NYSE official closing prices is one of the most important in the market,” Aite Group LLC analyst Spencer Mindlin said by e-mail. “Millions of portfolios and retirement accounts depend on the closing prices of NYSE-listed stocks and ETFs.”
Not knowing the closing price for a security can be a source of risk for traders, leaving fund managers unable to accurately tally the value of their holdings.
The error comes as NYSE is facing the fallout from a separate technical error almost two years ago. Parent Intercontinental Exchange Inc revealed last month that US Securities and Exchange Commission investigators believed that a three-and-a-half-hour New York Stock Exchange outage on July 8, 2015, violated the law.
NYSE first reported it was investigating a technical issue at 4:07pm on Monday, just minutes after the regular trading session ended.
The bourse said in a later message to customers that ETF holders who wanted to be compensated for issues relating to the malfunction should submit their claims by 9:30am Eastern time yesterday. The company also said the underlying cause of the disruption had been identified and fixed.
NYSE Arca saw severe disruption to its market opening in August 2015. While that was not caused by faulty technology, a later analysis by the US Securities and Exchange Commission found that rules at the venue contributed to more than 1,000 trading halts in 327 exchange-traded products.
In December last year, trading at the exchange was halted for 15 minutes because of a technical issue, though traders said the impact was minimal as orders flowed to other markets.
Mindlin said that glitches can have a competitive impact in a sector where NASDAQ Inc and CBOE Holdings Inc are battling for business.
“These consequences of outages like this highlight the importance of stable and trustworthy technology at the market venue where an ETF issuer chooses to list its products,” Mindlin said.
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