'Corrupted data' caused CBOE outage, Trade Alert says; CBOE mum

CHICAGO/SAN FRANCISCO, April 29 Mon Apr 29, 2013 4:38pm EDT

CHICAGO/SAN FRANCISCO, April 29 (Reuters) - A corrupt data file that disrupted the Chicago Board Options Exchange's ability to telegraph what contracts could be traded led to the market's half-day outage last Thursday, according to an options data provider briefed by a CBOE staff member.

"They had a corrupted data file load which is necessary to tell all the systems which options contracts are available for trading," said Trade Alert President Henry Schwartz. He said the CBOE staffer briefed him informally at breakfast on Thursday on the sidelines of a CBOE-led annual industry conference in Las Vegas.

Schwartz declined to identify the staff member.

The outage occurred just one day short of the oldest U.S. options market's 40th anniversary. What was supposed to be a celebration of the exchange's storied past turned into a scramble, as CBOE Chief-Executive designate Ed Tilly rushed from Las Vegas to Chicago to deal with the situation.

Tilly takes the reins next month from current CEO Bill Brodsky. The exchange is owned by CBOE Holdings Inc.

The incident brought attention to how technological troubles can roil the markets, coming just days after hackers attacked the website of brokerage Charles Schwab Corp and a false news report on the Associated Press's Twitter account sent the stock market into a brief but steep tailspin.

CBOE officials have declined since Thursday to provide any details on the breakdown, saying only that it was a "software problem" and was not the result of a cyber-attack.

A CBOE spokeswoman declined on Monday to confirm the explanation provided by Schwartz, and promised "that when we have additional information on the cause, I will be sure to give it to you, so your account will be accurate."

Trade Alert collects options data from the exchanges, analyzes it and distributes the results to clients.

A status log for the exchange shows that CBOE first reported "issues downloading" CBOE products on April 25 at 8:17 a.m. EDT, about an hour before the open. It took until 1 p.m. EDT that day before the CBOE was able to reopen fully for trading.

Each day before the open, U.S. stock-options exchanges provide data on what options are available for trading.

"The two to three hours before the trading day starts are critical and problems need to noticed and corrected in order for the trading to start normally," Schwartz told Reuters. "That was not the case with CBOE."

The closure cut off investor access to options on two of the most closely watched stock market gauges, the Standard & Poor's 500 Index and the CBOE Volatility Index, known as Wall Street's fear gauge.

But the impact on CBOE trading was less than what might have been expected, with trading of index options products down just 12 percent from the previous day. Users of stock-index options tend to be longer-term strategy traders, who just waited until the CBOE had reopened before placing their bets or hedges.

For those traders that needed immediate access to a hedge for the broad market, there were alternatives to CBOE's SPX options, said Jeff Shaw, head of trading at Timber Hill, a division of Interactive Brokers Group and one of the biggest U.S. traders of stock and stock-index options.

"We saw very little impact," he said. "It was a non-event."

The CBOE's first day of trading was April 26, 1973. here (Reporting by Ann Saphir in San Francisco and Doris Frankel in Chicago; Editing by Dan Grebler)

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