Nasdaq OMX Group provided more details about its three-hour trading halt last week, saying a flood of data received from NYSE Arca exposed a software flaw in its conduit for disseminating prices.
The deluge “vastly exceeded” the capacity of a marketwide feed known as the securities industry processor, “which caused its failure and then revealed a latent flaw in the SIP's software code,” Nasdaq said in a statement released Thursday.
The report amplifies previous public statements by Nasdaq about what led it to the freeze in trading of about 3,300 stocks both on its own platform and others where equities change hands in America. The disruption underscored how quickly the integrity of the U.S. market, which has a value of about $20 trillion, can be subverted as orders to buy and sell shares are matched on more than 50 exchanges and alternative electronic venues.
“A number of these issues were clearly within the control of Nasdaq OMX,” the exchange operator said. “We are responsible for them, regret them and intend to take all steps necessary to address them to enhance stability and functionality of the markets.”
It said, “Other issues contributing to the halt are more endemic to technology issues across today's complex markets and will require a broader industrywide effort to resolve.”
The malfunction began when NYSE Arca sent more than 20 “connect and disconnect sequences” as well as a stream of quotes for inaccurate stock symbols, according to Nasdaq's summary. At one point, Nasdaq received more than 2½ times more data per second than the system's tested capacity.
The shutdown was the latest in a series of failures to disrupt markets, prompting the Securities and Exchange Commission to push for rules requiring executives to boost the reliability of their technology. Faulty software caused Nasdaq's mishandling of Facebook Inc.'s public debut last year.
In a separate message sent to clients today, Nasdaq said that it's developing plans to better communicate with companies listed on its exchange and identify systems that need improvement after last week's technical malfunction.