Is Nasdaq and NYSE Neglect Breaking the Humble Stock Ticker?

On the morning of Sept. 12, executives of the nation’s major stock and options exchanges traveled to Washington to meet with Securities and Exchange Commission Chairman Mary Jo White. The summons was prompted by a rash of technical glitches on the exchanges, the most glaring of which hit on Aug. 22, when a software failure forced the Nasdaq to halt trading for three hours. White told the executives to come back in two months with a “comprehensive action plan” for making the markets more resilient. “Our homework assignments are clear,” NYSE Euronext Chief Executive Officer Duncan Niederauer said to reporters afterward. “They require collaboration, and we’ve got 60 days.” Four days later, a glitch at an NYSE subsidiary helped bring the entire U.S. options market to a halt for 20 minutes.

Over the past decade, exchanges in the U.S. have evolved from physical places where trading is conducted by humans into vast electronic networks where computers buy and sell stocks in milliseconds. Despite—or because of—this complexity, one glitch can crash the entire system. This weakness was most apparent with the Nasdaq outage. The failure occurred in a piece of software called a securities information processor, or SIP, which is responsible for distributing stock price data to brokers, traders, and media outlets. The SIP is what feeds the tickers crawling along the bottom of the screen on CNBC or Bloomberg TV, and on financial websites. When that failed, exchange officials decided to shut down all trading so that investors who still had access to price data couldn’t exploit the situation.