Sunday | November 19, 2017
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Nasdaq shuts options market for almost entire day on malfunction

NEW YORK — Nasdaq OMX Group shut the sixth-largest U.S. options exchange more than five hours early because of a technical malfunction.

The Nasdaq Options Market, which handled 8.1 percent of American trading in September, was shut at 10:36 a.m. New York time and would not reopen Friday because of a “significant increase in order entries inhibited the system’s ability to accept orders and disseminate quotes” for some contracts, the company said. Trading continued on the 11 other U.S. venues, including two owned by New York-based Nasdaq.

The mishap followed others earlier in the week. An Oct. 30 malfunction interrupted data transmission at Deutsche Boerse AG’s International Securities Exchange, while Nasdaq was unable to distribute prices for its benchmark stock indexes for almost an hour Oct. 29. The breakdowns refocused concern that the distribution of trading over dozens of mostly automated venues has made U.S. securities markets fundamentally flawed.

“Any time you up the level of complexity, you up the risk of there being problems,” Christopher Rich, head options strategist at JonesTrading Institutional Services LLC, said in a phone interview from Chicago. “I don’t see that many advantages to having so many exchanges. It creates more opportunities for something to go wrong.”

Nasdaq’s stock price dropped Friday amid the disruption at its options market, falling as much as 1.2 percent. At 2:44 p.m. New York time, the shares lost 0.3 percent. The Bloomberg World Exchanges Index of 27 bourse operators gained less than 0.1 percent.

The options market has seen other errors this year. CBOE Holdings Inc. delayed the opening of its main exchange for three hours in April, while Goldman Sachs Group Inc. executed erroneous orders Aug. 20. The entire market was shut briefly Sept. 16 because of a malfunction with the options industry’s main pricing feed.

New York-based Nasdaq has suffered several high-profile malfunctions, including its mishandling of Facebook Inc.’s initial public offering in May 2012 and an Aug. 22 outage in its pricing feed, which prompted a three-hour halt for thousands of U.S. stocks.

Like the U.S. equity market, options trading is spread across multiple exchanges, all of them connected by data feeds that ensure buyers and sellers get the best available price. The fragmentation followed a decade and a half of reform on Wall Street aimed at spurring competition among securities exchanges.

Some investors have said the system breed so much complexity that avoiding breakdowns is impossible. Trevor Mottl, Susquehanna Financial Group LLLP’s New York-based head of derivatives strategy, said having multiple venues gives traders alternatives when one is unavailable.

“I’d argue that the increased number of exchanges where transactions can occur decreases the impact of issues like this,” Mottl wrote in an e-mail. “I expect that the impact would have been far greater 10 or more years ago.”

Securities and Exchange Commission Chairman Mary Jo White is pressuring exchanges to collaborate on making their systems more reliable. She met with executives from securities exchanges on Sept. 12 in Washington.

— With assistance from Cecile Vannucci in London.