On what appeared to be a regular trading day last month, the New York Stock Exchange shut down because of a computer glitch. Trading was halted for more than an hour June 8 due to a failed software upgrade.
Three weeks later, the Nasdaq stock market, home to many of the biggest technology stocks, also had computer problems and interrupted trading on one of the busiest days of the year.
The markets crashed. Technologically speaking, that is.
How can this be? These are, after all, the world's biggest stock exchanges, with an average daily volume of 1 billion shares each. The NYSE alone has $43 billion worth of trades each day.
Despite these computer failures, traders in New York and elsewhere consider technical errors more fluke than common occurrence. They see computer crashes as inevitable because trading systems today handle more orders than ever before and technology has permeated every facet of trading.
"I don't know why people get so riled up when a system fails, especially when trading systems have been so reliable," says Fred Ketchen, managing director of equity trading at Toronto-based investment firm Scotia McLeod.
He reckons the Toronto exchange is up and running 99.8 percent of the time. "People expect large institutional infrastructures to work all the time," he says. "Everything electronic is not infallible."
Steve Kee, a Toronto stock exchange spokesman, agrees. "No exchange can be up 100 percent all the time," he says, acknowledging that Toronto's three computer glitches in the past year have attracted more undue attention than he likes. "Technical problems always become a focus," he says. "It's never how well the system works."
Toronto's spate of problems came from overhauling its 20-year old trading engine to a faster and more efficient one, he says.
London's last glitch was a seven-hour trade suspension in April last year. "In the past five years, we have had more than 99.9 percent service," says Ian Campbell, a London stock exchange (LSE), spokesman.
Mr. Campbell says the LSE continually invests in and upgrades its technology. Recently it decided to sell its trading system hardware to other countries and just signed a deal with South Africa's Johannesburg exchange.
Campbell believes that globalization will make computer problems at individual exchanges a nonissue. Linking stock markets all over the world would allow traders on any exchange to redirect orders in case a system goes down, he says.
London recently upgraded its technology and increased its trading capacity. "We can handle 100 times more volume, which basically is all of Europe's trading volume," Campbell says.
LSE currently has 120,000 transactions per day going through its system, while the NYSE has 1 million. Thirty years ago, the NYSE averaged only 31,000 trades per day.
Such heavy trading has made exchanges all the more dependent on technology. "The whole industry has undergone an overhaul," says Dan Mathisson, director of risk program trading at Credit Suisse First Boston.
Not only has volume mushroomed, but now all aspects of trading are automated, he says.
And he sees lots more opportunities for failure. "Considering the percentage of volume traded, there are much less problems; however, the total number of computer problems has increased," Mr. Mathisson says.
Ray Pellecchia, a NYSE spokesman, explains it another way. "Our dependence on tech magnifies our exposure to problems," he says.
The NYSE goes through 1,000 new software releases per year, but the recent software glitch threw it off schedule. The exchange reverted to the previous computer program until it can work out the flaws in the new one. The NYSE tests its programs on a mirror system during nontrading hours. Mr. Pellecchia says the exchange will have to watch these upgrades more carefully. He is nonetheless proud of the NYSE's track record.
"In the entire decade of the 1990s, the exchange's total downtime is only 1 hour and 59 minutes," he says.
(c) Copyright 2001. The Christian Science Monitor