In an apropos finale, the New York Stock Exchange suffered one last trading glitch on New Year’s Eve. According to Dow Jones Business News, the NYSE issued “an alert to traders at 3:19 p.m. EST that its equity market was experiencing an issue with one of its engines that matches ‘buy’ and ‘sell’ orders and that 26 issues were affected, including BBX Capital Corp. (BBX), Verso Paper Corp. (VRS) and TransAlta Corp. (TAC).”
Although the trading problem was fixed within five minutes, it served to remind everyone of a year of trading-related snafus not only at the NYSE ( August, November), but also at the Johannesburg Stock Exchange (January), the SIX Swiss Exchange (January), the Tokyo Stock Exchange (February, August), the BATS exchange (March), the Madrid Stock Exchange (August), Indonesia’s Stock Exchange (August), the Nasdaq (August, October, November, December, Australia’s Stock Exchange (October), India’s National Stock Exchange (October), Sweden’s Stock Exchange - which is operated by Nasdaq OMX - (November), and the Chicago Mercantile Exchange Group (December), to name only a few.
There was also the infamous August Knightmare on Wall Street, where “zombie software” caused market-maker Knight Capital Group to lose some US $440 million in about 45 minutes. Knight Capital had to seek financial help to avoid bankruptcy, and was sold last month to Getco Holding Company LLC for $1.4 billion, one of the firms that financed Knight during its troubles. Knight Capital’s CEO Thomas Joyce conveniently and disingenuously blamed the firm's problem on “knuckleheads” in his IT department.
Last year was supposed to be a year when the world’s stock exchanges were going to clean up their acts, given that, according to the Financial Times, there were over 20 European exchange incidents alone in 2011. But 2012 seemed to be a lost year in that regard.
A story at the Wall Street Journal today reported the exchanges and market participants are promising (again) that this year they really are going to manage their operational risks better. For example, next month a pilot program is being rolled out to strengthen market-circuit breakers, and there will be limits imposed on how much a stock will be allowed to change in their average price within a 5-minute interval. The U.S. Security and Exchange Commission, which approved the above changes, is also creating a tracking system for U.S. stock activity to help it quickly audit what happens when something goes awry.
The fixes are meant to help convince ordinary investors (and professional traders) that the exchanges haven’t grown too complex to manage, but the changes may be water off a duck’s back at least for the many ordinary investors who, after the great stock sell-off of 2008 and the continued world economic turmoil including the on-going US fiscal cliff brinksmanship, no longer trust the markets.
Robert N. Charette is a Contributing Editor to IEEE Spectrum and an acknowledged international authority on information technology and systems risk management. A self-described “risk ecologist,” he is interested in the intersections of business, political, technological, and societal risks. Charette is an award-winning author of multiple books and numerous articles on the subjects of risk management, project and program management, innovation, and entrepreneurship. A Life Senior Member of the IEEE, Charette was a recipient of the IEEE Computer Society’s Golden Core Award in 2008.
