CORRECTED-Nasdaq says making progress on system that led to August outage

Thu Jun 19, 2014 9:39am EDT

By John McCrank

NEW YORK, June 18 (Reuters) - Nasdaq OMX Group has made changes to the system that caused a three-hour trading halt in Nasdaq-listed stocks last summer, to make it more robust and to limit possible future outages to 10 minutes, a company executive said on Wednesday.

The exchange operator now hopes to continue running the system, called a Securities Information Processor (SIP), reversing direction from November when it said the risks of doing so would outweigh the rewards, said Brian Hyndman, Nasdaq's senior vice president of global information services.

"We feel we are in a much better spot today, so we will move forward. We do want to be the processor," he said at the Securities Industry and Financial Markets Association's SIFMA Tech conference in New York.

U.S. corporate stocks are either listed on the Nasdaq or on the New York Stock Exchange, but can be traded on any of the 11 U.S. stock exchanges. SIPs provide investors with stock quotes and last-sale prices for Nasdaq-listed stocks across all venues. There are separate SIPs for NYSE-listed stocks, and for options, both run by units of NYSE.

When a software glitch hit the Nasdaq-run SIP in August, investors who did not subscribe to the exchanges' proprietary data feeds were in the dark as to what the best bids and offers were for Nasdaq stocks. To maintain a fair market, the exchange shut down trading in its listed securities, which include Apple, Google, and Facebook, for hours, prompting concerns about the complexity, and ultimately the fragility, of the market.

Hyndman said technical outages are expected from time to time but that what really disturbed regulators was the amount of time it took to get the market back up and running.

An independent auditor hired by Nasdaq recommended a number of fixes to make the system more robust, but implementing them was an issue, he said. The SIPs are run by Nasdaq and NYSE, but committees made up of members all of the exchanges must approve decisions on finances and systems upgrades, with the costs coming out of revenue from the sale of the SIP's data.

Hyndman said that at the time, the SIP committee did not seem engaged in the process, causing a frustrated Nasdaq to give notice it would end its contract to run the system in two years.

The committee eventually approved the fixes, and Nasdaq has put several in place and will implement others over the next 18 to 20 months, he said.

"It's not perfect - there are risks with any system - but by the end of this month, if we do have an outage, we feel like we can be back in a fairly short amount of time."

Nasdaq will have to bid for the SIP contract, which the committee put up for tender in November when the exchange gave its termination notice. Both Intercontinental Exchange's NYSE and BATS Global Markets have also said they are interested. (Reporting by John McCrank; Editing by Steve Orlofsky)