Nasdaq glitch sparks queries

WASHINGTON— The latest high-tech disruption in the financial markets increases the pressure on Nasdaq and other electronic exchanges to take steps to avoid future breakdowns and manage them better if they do occur.

The three-hour trading outage on the Nasdaq stock exchange Thursday also can be expected to trigger new rounds of regulatory scrutiny on computer-driven trading. Investors’ shaky confidence in the markets also took another hit.

Questions about potential dangers of the super-fast electronic trading systems that now dominate the U.S. stock markets ripple again through Wall Street and Washington. Stock trading now relies heavily on computer systems that exploit splitpenny price differences. Stocks can be traded in fractions of a second, often by automated programs. That makes the markets more vulnerable to technical failures.

The Commodity Futures Trading Commission expects to put forward next week a plan for new restrictions and oversight on high-speed trading, a person with direct knowledge of the matter said Friday.

Nasdaq-OMX CEO Robert Greifeld told CNBC on Friday that unspecified, external factors caused the glitch, and that the exchange followed all the proper procedures to correct the problem.

“We all have to be aware of the other person not acting always in the proper way, and you have to have your system be able to handle defensive driving,” Greifeld said. “We’re deeply disappointed with what happened yesterday. We aspire to perfection. We want to get to 100 per cent up time.”

The shutdown appeared to occur in an orderly fashion and didn’t upset other parts of the market, and the Nasdaq operated normally Friday.

But it was a major embarrassment. While hardly as stunning as the “flash crash” that set off a steep and sudden stock-market plunge in May 2010, the Nasdaq disruption did stir memories of it.

After the 2010 market break, regulators “never really developed a fix for it, and these kinds of things are going to continue to happen,” said Michael Greenberger, a law professor at the University of Maryland who was the top market oversight official at the CFTC in the late 1990s. High-speed trading commanded by mathematical formulas rather than people brings “the possibility of a calamity,” Greenberger said.

Regulators need to slow down automated trading by requiring trades to be placed “with human input,” he said.