(Updates to market close, adds details on options volume,
background on trading glitches)
By John McCrank
NEW YORK Nov 1 Nasdaq OMX Group Inc
closed its second-largest options market for much of Friday
after a spike in volume hampered the exchange's ability to
accept orders and distribute quotes, the latest glitch to hit
U.S. market operators.
The Nasdaq Options Market (NOM), which accounted for about 8
percent of U.S. options volume last month, was halted at
10:36:57 a.m. EDT (1436 GMT) and remained shut through the rest
of Friday, Nasdaq said.
In a statement, Nasdaq said it determined that it was "in
the best interest of market participants and investors to cancel
all open orders...and to continue to market halt through the
close." A Nasdaq spokesman declined comment beyond that
While the halt had minimal effect on the markets, it was the
latest in a raft of other industry glitches and issues in recent
months and years that have raised concerns about the soundness
of market infrastructure.
The problems have prompted a flurry of testing by exchanges,
including NYSE Euronext's first-ever IPO simulation
ahead of Twitter's highly anticipated IPO in an effort to avoid
the costly problems that hit Nasdaq following Facebook's market
Last week, Nasdaq had to contend with a 45-minute halt in
options trading on some Nasdaq stock indexes and in August, a
three-hour shutdown in all Nasdaq-listed shares.
Friday's incident came on a day with overall below-average
volume in the options market. After the halt, most people were
able to route option orders away to other market centers rather
quickly, said J.J. Kinahan, chief strategist at TD Ameritrade.
Equity options trading continued to take place on 11 other
venues, including Nasdaq's PHLX and BX Options exchanges.
Equities trading was not affected. Nasdaq said it would cancel
all open orders on the all-electronic NOM book.
While exchange-listed options trading volume in October was
up 24 percent from a year earlier, according to clearing
organization OCC, Friday was not an especially busy day.
About 15.1 million contracts changed hands, falling short of the
average daily trading volume of 17.1 million contracts for the
last 22 trading days, according to Trade Alert.
"Some of these things have happened because of the
interconnectedness and the complexity of the U.S. equity
markets," said Bill Brodsky, chairman of options exchange CBOE
Holdings Inc, on the sidelines of the World Federation
of Exchanges annual meeting in Mexico City on Wednesday.
"Automation has occurred at such a rapid pace, and yet the
basic structure of the markets was designed before people were
measuring things in milliseconds and recognizing that the
markets would become virtually totally automatic."
Human error was blamed for the 45 minute trading halt in
options trading on some Nasdaq stock indexes last week. On
August 22, all Nasdaq stocks, including Apple Inc,
Google Inc, and Facebook, were halted for three
hours after a spike in volume triggered a software flaw in a
Nasdaq-run system that receives all traffic on quotes and orders
for the exchange operator's stocks.
Following that problem, the U.S. Securities and Exchange
Commission called the heads of all of the exchanges to
Washington on Sept. 12 to discuss ways to strengthen critical
market infrastructure and improve its resilience when technology
The exchanges have to report back to SEC Chair Mary Jo White
by Nov. 12. Last week, SEC member Luis Aguilar called for
stricter penalties against exchanges for market disruptions.
TESTING ON THE RISE
"I think we'll all be better off as a result of the meeting
and the work that comes out of it," said Brodsky.
CBOE experienced a glitch in April that shut down the
Chicago Board Options Exchange, the No. 1 U.S. stock-options
market, for half a day, preventing trading in options on two of
the U.S. market's most closely watched indexes.
Part of CBOE's focus since has been to make sure it can cut
over to its backup systems more quickly, said Brodsky.
At NYSE, where a bug in new software being rolled out in
September briefly led to a trading halt across U.S. options
markets, more testing is going on as well.
The New York Stock Exchange held its first-ever simulated
IPO last Saturday in anticipation of high volume for Twitter's
forthcoming market debut.
Those tests were done in an attempt to avoid the types of
problems that Nasdaq experienced during Facebook's 2012 IPO,
when a tremendous volume of orders on the first day of trading
exposed a glitch in Nasdaq's system. That ultimately prevented
timely order confirmations for many traders, leaving them unsure
about their exposure for hours, and in some cases for days
Major market makers estimated they lost collectively up to
$500 million in the IPO. Last week, Nasdaq said it would
voluntarily pay out a maximum of $41.6 million to market makers,
though some are still seeking more restitution via arbitration.
(Reporting by John McCrank; Editing by Gerald E. McCormick,
Nick Zieminski and Ken Wills)