An upgrade for U.S. market technology
BOB MOON: Hope you had your seat belts fastened on this Thursday, the first day of March. Another wild ride on Wall Street today. As far as we know, the computers tracked it all without serious glitches. But it wasn’t that way when the stock market tanked earlier this week.
Now, the Securities and Exchange Commission and the House Committee on Financial Services reportedly want some answers about how the Dow suddenly went over a cliff — and why numerous buy and sell orders got held up during the trading spikes that resulted. Some investors watched thousands of dollars disappear right before their eyes. Literally, gone in 60 seconds. Is this enough to cause a crisis of confidence on Wall Street?
David Easthope is a senior analyst with Celent. Thanks for joining us to talk about this.
DAVID EASTHOPE: No problem.
MOON: If I’m an investor, why shouldn’t I be losing my confidence right now about whether my trade is gonna be executed the way I want it to be, or get held up by technical problems and it cost me a lot of money?
EASTHOPE: You’re right to point out that there was significant hit to market confidence in the New York Stock Exchange systems the other day, with the surge in orders and share trading that we saw and the market volatility. But what I think really happened two days ago was . . . really was a blip. And it’s something that the New York Stock Exchange can certainly address on the technology side. They are in the midst of migrating to a hybrid platform. And this is something that’s revolutionary and very new for the New York Stock Exchange. And with every migration to a new platform and a new system, there always are problems. And I think that’s where the rightful eye should be. It should be on this new system that the New York Stock Exchange is developing and the technology that underlies it.
MOON: Let’s talk short-term here. Four billion shares traded on Tuesday and there were a number of spikes that held up trading at times. How confident are you that in the near-term, that couldn’t happen again and create a total meltdown?
EASTHOPE: It can happen again. And the way it would happen again is we don’t learn from our mistakes. Or the New York Stock Exchange doesn’t learn that in today’s world, speed . . . information flows around the world rapid-fire, and you will be hit, as an exchange, with rapid-fire orders that expect to be executed in milliseconds. And that’s where the NYC is moving their system to go from anywhere from eight or nine seconds of execution speed down into the milliseconds. That is the technological challenge that is faced by the New York Stock Exchange. And if they respond to that, I don’t think the day like we had on Tuesday will repeat itself.
MOON: I’ve heard it argued in the aftermath that perhaps just more human intervention was needed.
EASTHOPE: Well, we saw what the default was when the technology failed, that the default went to the floor traders. And I think that’s something that can’t be relied on consistently in the future. Because if the technology system can’t process the orders quickly enough, I don’t think you can look to human beings to actually fill that role. Because people are looking, again, for . . . we’re talking sub-second execution speeds. And if anything, the SEC is putting pressure on the New York Stock Exchange actually to embrace more technology through the new regulations called Regulation NMS, which actually mandates, to a large degree, electronic trading of securities in the United States.
MOON: David Easthope is senior analyst with Celent. Thank you for joining us.
EASTHOPE: Thank you very much.
MOON: For its part, the New York Stock Exchange has acknowledged it had some problems, and a spokesman told us today the Exchange is continuing to assess its computer capacity.
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