Tuesday, August 27, 2013

NASDAQ Trading Halted by Technical Issue

On Thursday August 22, NASDAQ’s trading exchange halted by what was announced as a “Technical Issue”.  This stand still lasted for almost four hours, causing uproar in the trading market.  The last time NASDAQ stood still for that long was from the tragic day in 2001.


The exchange publicly classified the root of the cause being associated as trouble with the Unlisted Trading Privileges (UTP) and Securities Information Processor (SIP) quote dissemination system.  The UTP is the basis for the electronic network which carries quotes for the New York trading system.  The SIP refers to any person engaged in the business of collecting, processing, or preparing for distribution or publication with transactions or quotes.
So what we don’t know is why there was trouble with the UTP SIP quote dissemination system.  Was it really a glitch in the system, human error, or maybe an act of malicious crime?


Our society is well aware of cyber-attacks, hackers, and the act of malicious behavior disrupting computer systems for their own gain.  Stock exchanges have been a target for hackers for a long time.

Ziv Gadot, Security Operations Center team leader at Radware had a talk titled, “Stock Exchanges in the Line of Fire—Morphology of Cyber-Attacks.”

In 2011, the NASDAQ Director’s Desk application used by the exchange to share information was hacked with and eavesdropping tool planted in the system.
There is no direct relation or official word still of why the incident occurred.  NASDAQ’s market system first reported “momentary interruptions” at 11:45 a.m. EDT.  The interruptions lasted for approximately fifteen minutes and were resolved with the system operating normally until 12:09 p.m., NASDAQ warned that it was experiencing a quote submission issue with the UTP SIP.
At 1:30 p.m. EDT, NASDAQ was still out of service to the market.  The big board posted that the market’s system status’s reopening would only allow a five-minute quote-only period.  Then at 2:28 p.m. EDT, a system status update stated equity trading would resume at 3:10 p.m. EDT.


The system failure could have been a glitch in the system.  The NASDAQ quote dissemination system
is a highly operating system with extreme levels of concurrency and data given at one time.  Every trader and trading system expects the same data to be distributed at the same time.  It’s a very complex and sophisticated system that has a high level of risk for error.  Computers are computers with their integrated circuits of millions to billions of arithmetic operations.

The Risk

The Securities and Exchange Commission continue to review the reasoning and vulnerabilities of the system.  During the system failure, NASDAQ failed to establish a connection 30 times.  After the connection was finally re-establish, the computer began to suffer from a capacity overload created by the multiple efforts to connect with the exchange.
An outage like last Thursday can have catastrophic effects on the NASDAQ’s system exchange causing ripples of shutdowns across the market spreading confusion.
At RBC Global Asset Management in Chicago, traders noticed that quotes to buy Nasdaq-listed stocks were coming in at higher prices than quotes to sell those same stocks, an inversion of the normal order. Prices also seemed to be old, or “stale” in Wall Street parlance.
With 2,700 securities frozen, banks and big trading firms feared the brusque start of the systems.    Stock executives had to manage hundreds of backlogged orders during this crucial time.  Problems between NASDAQ and NYSE Arca continued even after the stocks reopened.
Time will tell what the problem was and if this is a bigger issue than a few hours lost at the stock exchange.

NASDAQ Halt: System Glitch or Hack? – eWeek
August 23, 2013
NASDAQ Trading Halted by Technical Issue – eWeek
August 22, 2013
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