--NYSE glitch affects trading in 216 issues
--NYSE does not use normal closing auction for the affected
securities
--Exchanges route orders away from NYSE for most of Monday
(Updates with NYSE's plan for trading in 216 securities on
Tuesday in paragraph eight)
By Chris Dieterich and Jacob Bunge
NEW YORK--A NYSE Euronext (NYX) trading glitch led to a day-long
trading disruption and forced the Big Board operator to establish
closing prices for more than 200 stocks using a backup
methodology.
Monday's outage extended a string of recent technology failures
that have spotlighted the U.S. securities industry's reliance on
sometimes-shaky electronic systems. Last month the Nasdaq Stock
Market canceled trades in shares of Kraft Foods Group Inc. (KRFT)
after an error drove a spike in prices, weeks after a batch of
energy-related stocks saw prices roiled by a separate mistake.
NYSE alerted traders soon after the market opened that it was
experiencing an outage in the matching engine that pairs buy and
sell orders for 216 listed securities, including stocks of
companies like CVS Caremark Corp. (CVS), Lazard Ltd. (LAZ) and
United States Steel Corp. (X). NYSE ceased trading in the
securities, while other exchanges stopped routing orders to NYSE
for most of Monday's session.
Trading never resumed in NYSE in the 216 stocks, and the
exchange determined the official closing price for each of the
securities based on a consolidated reading of last-sale prices,
instead of an auction normally used to close stocks.
The official closing price set by the primary market--the NYSE
in the case of the stocks affected by Monday's technology
problem--is important for stock indexes and mutual funds. Funds use
closing prices from listing exchanges to calculate net asset
values, while indexes use closing prices to calculate their daily
values. The closing level for benchmarks like the S&P 500 were
determined using the consolidated reading on Monday, instead of
NYSE's usual closing price, according to S&P Dow Jones
Indices.
Monday's problem occurred as the exchange operator transferred a
raft of issues to its new "matching engine," a move designed to
standardize the way NYSE processes orders across its different
venues, according to an NYSE spokeswoman. Since September, some 800
stocks have made the switch to NYSE's new matching engine, which is
known as the "universal trading platform." The exchange operator
has plans to migrate more stocks through the end of the year.
Stocks affected Monday represent just a fraction of the 3,825
total listings that trade on NYSE's floor, according to an exchange
spokeswoman.
On Tuesday, the NYSE will move roughly half of the 216 affected
stocks back to their previous matching system. The company said in
a note to traders Monday that it expects a "normal trading day in
all securities for tomorrow."
Trading glitches at the U.S. exchanges have drawn added scrutiny
following larger-scale technology problems such as the errant
trading that nearly brought down Knight Capital Group Inc. (KCG) in
early August, and Nasdaq's problems opening the stock of Facebook
Inc. (FB) in May, when many brokers and investors had to guess at
their positions in the stock.
More recently, concerns over NYSE's planned approach to opening
its stock market during superstorm Sandy prompted brokers and
exchanges to instead shutter U.S. stock markets for two days,
rather than force officials to come into their offices or risk
another confidence-damaging market misstep.
Brokers said Monday's problem came during an otherwise quiet day
for U.S. stock markets, and trading activity was generally
unaffected as transactions were sent to other exchanges.
"We have the ability to trade in other places and steer
business, so the impact from a trading perspective for a customer
has been minimal," said Joseph Cangemi, head of electronic trading
for Convergex Group.
NYSE's shortfall of incoming orders meant NYSE saw its market
share drop sharply compared to a normal day. A total of so far 292
million shares traded on NYSE on Monday, or 6.3% of total market
share, according to data from BATS. On an average day, NYSE
represents more than 10% of total market volume.
The technical difficulties put the NYSE's trading volume well
behind electronic rivals BATS Global Markets, Nasdaq OMX Group Inc.
(NDAQ) and Direct Edge Holdings LLC on Monday, and each exchange
saw more traffic than average.
Shares of the exchange operator rose 31 cents, or 1.4%, to close
Monday at $23.26.
Write to Chris Dieterich at christopher.dieterich@dowjones.com
and Jacob Bunge at jacob.bunge@dowjones.com
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