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NYSE acts to ditch the glitches

Trading at the Big Board runs smoothly, a day after its electronic system had considerable difficulties. Technicians make changes overnight.

March 01, 2007|Thomas S. Mulligan Times Staff Writer | Times Staff Writer

NEW YORK — Computer glitches that added to the turmoil of Tuesday's stock market plunge struck some on Wall Street as an illustration of the downside of the markets' moving increasingly to electronic trading.

At the same time, problems at the New York Stock Exchange handed a bragging issue to its arch-rival, the Nasdaq Stock Market Inc., which said its electronic systems handled Tuesday's trading without significant disruptions.

As U.S. stock markets staged a modest recovery Wednesday, officials at Dow Jones & Co. and the NYSE were still investigating the cause of computer hiccups that sowed confusion and caused trading delays Tuesday at the end of a trading session in which the Dow Jones industrial average shed 416.02 points amid very heavy volume.

At the NYSE, a spokesman said technicians made overnight changes to address computer capacity problems in hopes of preventing a repeat of Tuesday's problems. Trading went smoothly Wednesday.

Dow Jones said it had not yet pinpointed the cause of a problem that caused its computerized calculation of the Dow Jones industrial average and other indexes to lag behind the trading in the individual component stocks for about a 70-minute period Tuesday afternoon.

When Dow Jones switched to a backup system at 3 p.m. Eastern time, the calculations quickly caught up with the trading, making it appear as if the Dow had plunged nearly 200 points almost instantaneously.

Seeing the key index suddenly fall out of bed caused traders to besiege the Big Board with message traffic, overwhelming its computers and leading to trading delays that lasted beyond the 4 p.m. market close.

Computerized trading can lower transaction costs and increase speed, but in a volatile market, "you don't get the hand-holding you used to get" when orders were executed primarily by humans, Mike Driscoll, senior trader at Bear Stearns Cos., said Wednesday.

Some traders quickly blamed the NYSE's new "hybrid" trading system, in which electronics have taken over a large part of the work once done by the NYSE's specialist traders.

But Big Board Chief Executive John Thain denied that Wednesday, saying that the logjam occurred not at the point of trade execution but in the system that routes message traffic, including orders, into the exchange. "There was no problem with hybrid at all," Thain said in an interview with CNBC on Wednesday.

Thain said that in fact the strengths of the hybrid system were displayed when, facing a computer hang-up, NYSE specialists took orders by hand.

"People for the most part got done what they needed to get done," said Bear Stearns' Driscoll, although he added that it was "disconcerting that things didn't perform better."

Nasdaq Chief Executive Robert Greifeld took advantage of his rival's distress, touting the smooth performance Tuesday of his all-electronic market and telling CNBC that Nasdaq has the best technology.

David E. Humphreville, president of the NYSE Specialists Assn., agreed with Thain that the hybrid system was not at fault, but said it remains to be ironed out who is liable for any economic damages if orders delivered to the exchange did not get executed.

The glitches prompted Rep. Spencer Bachus (R-Ala.) and Rep. Deborah Pryce (R-Ohio), to write letters to Thain and Dow Jones Chief Executive Richard Zannino demanding whether the "unprecedented, intermittent system shortcomings" contributed to the market's decline Tuesday.


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