The nearly four-hour halt in trading at the New York Stock Exchange on Wednesday was the longest technology-related disruption in recent memory at the 223-year-old ‘Big Board’, one of the world’s largest. The exchange, which had faced minor technology problems recently, suspended trading in securities by 11.30 a.m. local time citing “problems arising from our technical issue”, and could reopen only about 45 minutes before the close of the day. Interestingly, this episode had almost no impact on the overall trading of U.S. stocks. For, the NYSE is not what it used to be. If it accounted for about 80 per cent of total trading stocks in the U.S. in 2005, the share is now 20 per cent. Secondly, investors were able to route their buy and sell orders to other exchanges operated by Nasdaq OMX Group and BATS Global Markets, which continued to function. This was made possible because of the stock market’s inter-connected trading system. While stocks are listed on both the NYSE and Nasdaq, they are traded on at least 10 exchanges and at more than 40 private trading venues, known as dark pools, during the day. They only trade on the listing exchanges during the opening and closing auctions. The disruption, nonetheless, rattled investors, who already had reason to be on alert given the uncertainty over the Greek crisis and the rout in the Chinese markets. Chinese stocks plunged 6.7 per cent on the same day amid fears that a slowdown in the world’s second largest economy would spill over into its financial sector. In the U.S., the Standard & Poor’s 500-stock index fell about 1.7 per cent, and the Dow Jones Industrial Average dipped by about 1.5 per cent.
The freeze raises serious questions both about the functioning of the NYSE and the efficacy of automated systems that underpin financial markets today. The NYSE’s new owner, Intercontinental Exchange, had restructured the company after the $8.2 billion purchase in 2013. It sold the NYSE’s assets and sent away half its employees, including most of the 22 senior-most executives. This, according to some analysts, has affected the functional aspects of the exchange; if proved true, this needs regulatory oversight. But the NYSE was not the only American organisation that faced technical glitches that day. United Airlines grounded dozens of flights and delayed hundreds because of a systems issue. And around the same time as the NYSE trading halt, the website of the Wall Street Journal went down. Even if these outages were not caused by any coordinated cyber attack, as has been claimed by U.S. officials, the events demonstrate the vulnerability and fragility of technological systems. This aspect needs urgent attention. There are lessons here for every country including India.
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