The vague “connectivity issue” that NASDAQ said triggered the outage that paralyzed a large part of the US stock market on Thursday originated as a problem between NASDAQ and rival NYSE Arca, a source familiar with the matter said on Friday.
NASDAQ said the problem started shortly before midday on Thursday and quickly cascaded through its securities information processor, the system that receives all traffic on quotes and orders for stocks on the exchange, preventing it from disseminating quotes.
The source, who spoke on condition of anonymity, said brief outages between exchanges occur from time to time, but are short-lived.
In such instances, traders receive alerts from an exchange that essentially tell them to rout their order flow elsewhere for a period. Most of these episodes, which may occur several times a week, are resolved quickly.
NASDAQ did not respond to requests for additional information beyond a statement issued to traders on Friday. A spokesman for NYSE Euronext, the parent of the New York Stock Exchange and its NYSE Arca platform, denied Arca was involved.
NASDAQ chief executive Robert Greifeld declined to identify the source of the connectivity problem in television interviews on Friday.
The precise nature of the breakdown remains unclear.
However, the outage, first flagged at 11:48am, quickly spiraled out of control and soon left US$5.9 trillion of US equities — more than a third of the US stock market — idle for more than three hours. Shares of three of the five largest companies by market value, Apple Inc, Google Inc and Microsoft Corp, typically also among the most active in any session, were unavailable.
A number of market participants and others criticized NASDAQ’s lack of an early public statement on the outage. NASDAQ did not issue a formal press release until late on Thursday afternoon, well after the trading day had ended.
“As usual the communication could have been a little bit better. They could improve the communication and the amount of communication,” said Mark Turner, managing director and head of sales trading at Instinet in New York.
Greifeld said the exchange sent messages through its trader alert system and was involved in direct communication with clients.
NASDAQ’s first responsibility was to assure “fair and orderly markets,” Greifeld said on Friday on Fox Business Network, and exchange officials worked first to understand and fix the problem, and then to communicate with the securities industry to ensure a smooth restart.
“There was active communication going on,” Greifeld said.
“It has shown how horrible the crisis management side is. Communication was horrid. There is no backup. So we have to focus on the crisis management side,” Mohamed El-Erian, chief executive and co-chief investment officer of Pimco, said on Friday on CNBC.
In the end, even those who criticized NASDAQ for the pace of its communications, agreed that the reopening of trading went well.
Trading on Friday transpired with no apparent hiccups. Shares of NASDAQ itself, which fell 3.4 percent once trading resumed on Thursday, gained about 1.2 percent.