Software glitch forces brief shutdown of Nasdaq

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by Lee Copeland

(IDG) -- A software glitch in the Nasdaq's price quote engine caused the stock exchange to halt trading for 11 minutes Wednesday.

It's the third time this year that the stock exchange has experienced a slowdown or a halt in trading due to problems with its order-routing system. Analysts said temporary outages and technology glitches are recurrent problems that online brokerages and trade exchanges haven't yet been able to lick.

"Nasdaq will have glitches, as will NYSE and other full-service and online brokerages, because no one is operating in a fail-safe mode," said Dan Burke, an analyst at Gomez Advisors Inc. in Lincoln, Mass. "They are all spending tremendous amounts of resources to ensure 100% uptime, but there's no real way to ensure it yet."

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According to Nasdaq Stock Market Inc. officials, Wednesday's halt was caused by a software problem in its Small Order Executive System and its quote update system by Carlsbad, Calif.-based SelectNet Inc. Nasdaq officials said they noticed the problem at 3:40 p.m. EST and suspended trading at 3:49 p.m. EST. Technicians had restored the system incrementally by 4 pm EST.

"We shut down on our own, so that folks were not trading on stale quotes," said Nasdaq spokesman Andy MacMillan. "It was a unique combination of circumstances that caused the problem, but the problem was fixed by after-hours trading."

Until the problem was fixed, Nasdaq traders were unable to update and view new quotes. The exchange also handled a higher-than-usual trade volume of approximately 2 billion trades. Nasdaq's average share volume is 1.65 billion trades per day.

Problems with the order-routing system have caused delays on two other occasions this year.

The SelectNet system experienced 75 minutes of update delays on April 4. That day investors traded 2.9 billion shares on the exchange and requested 6.5 million quote updates. On Feb. 18, a communication line malfunction disrupted the dissemination of last sale price data on Nasdaq for two hours.

"Technology is brittle," said Jaime Punishill, an analyst at Forrester Research Inc. in Cambridge, Mass. "Considering it was down for less than 20 minutes and it has only happened twice this year, I say the Nasdaq has done a pretty good job of keeping its technology up to snuff."

Officials said the overall uptime for the order-routing system is 99.96% for the year thus far.

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