Nasdaq Resolves Technical Glitch Affecting Premarket Trading

Nasdaq, a major stock exchange that features shares of prominent US tech companies, announced that it had resolved a technical malfunction that disrupted trading for over two hours before the market opened on Monday. The exchange confirmed that all systems were operational again following the incident.

Nasdaq did not disclose the extent of the issue, which marks its second technical disruption in recent months. However, the exchange confirmed on its website that the problem was related to the matching engine, the software responsible for matching buy and sell orders. Nasdaq stated that the earlier matching engine issues had been resolved, and all systems were functioning normally. The company also mentioned that it would provide a comprehensive analysis of the incident once it becomes available.

Nasdaq hosts numerous stocks, including major companies like Apple, Tesla, and Nvidia. When technical glitches occur on exchanges, they can disrupt markets, undermine traders’ confidence, and draw regulatory scrutiny from agencies like the Securities and Exchange Commission (SEC).

According to a source familiar with the situation, the trading impact accounted for only 0.8% of all exchange-traded volume. However, certain stocks exhibited unusually wide spreads, indicating poor market liquidity, with sellers’ asking prices sometimes significantly lower than buyers’ bid prices, as noted by Seth Golden, president of investment research firm Finom Group.

Seth Golden noted that since 5:00 a.m. ET, the “ask” prices were consistently lower than the bid prices for many stocks, with some spreads showing the “ask” price lower by as much as $1 per share. Additionally, a trader based in Berlin attributed a brief dip in Nvidia stock at 6:40 a.m. ET to the outage, suggesting it may have been caused by incorrect quotes entered on the Nasdaq. Furthermore, the issue resulted in self-help declarations against Nasdaq from both Cboe and the New York Stock Exchange (NYSE), although these declarations were later revoked.

“Self-help” notifications are issued by trading exchanges when another exchange encounters internal issues processing trades, prompting orders to be redirected through alternative venues. Joe Saluzzi, co-manager of trading at Themis Trading, emphasized that brokers have access to other exchanges, ensuring redundancy in the system. This setup allows other exchanges to step in and handle trading activity, mitigating the impact of disruptions on market participants.

The glitch at Nasdaq impacted orders that were processed using the “RASH FIX” order handling system. FIX, or Financial Information Exchange, is a widely used messaging protocol in the financial industry. It defines a standard format for electronic communication of securities transactions between parties, including buy-side firms, sell-side firms, exchanges, and trading platforms.

An outage of this nature can disrupt the normal functioning of the market, leading to delays in order processing, inaccurate pricing information, and potential loss of investor confidence. Nasdaq’s previous experience with system errors in December highlights the importance of robust infrastructure and contingency plans to mitigate the impact of such incidents.

In December, Nasdaq experienced a system error that affected stock orders and impacted over 50 clients on the exchange. While exchanges typically have redundancy measures in place to minimize the impact of technical issues, incidents like these underscore the need for continuous monitoring and improvement of trading systems to ensure the stability and reliability of financial markets.

The New York Stock Exchange (NYSE), Nasdaq’s primary rival, experienced a significant glitch last year that disrupted the opening auctions for numerous stocks. This malfunction led to widespread trading halts, confusion regarding the accuracy of executed orders, and the cancellation of trades in over 250 securities.

The glitch at NYSE underscored the potential risks associated with technical issues in financial markets, as it resulted in substantial disruptions and uncertainty among traders and investors. Such incidents can have far-reaching consequences, affecting market participants’ confidence and the overall integrity of the trading environment.

In response to these challenges, exchanges continuously strive to enhance their infrastructure, implement robust risk management protocols, and improve communication channels with market participants. Additionally, regulatory authorities closely monitor exchange operations and may implement measures to address systemic vulnerabilities and prevent future disruptions.