NEW YORK U.S. regulators have asked Nasdaq OMX Group and NYSE Euronext to come up with a timeline of Thursday's three-hour trading disruption, but the rival exchange operators have been unable to agree on the details, according to several sources familiar with the situation on Monday.
Five days after a glitch that paralysed Nasdaq-listed stocks for three hours on all U.S. markets, Nasdaq and NYSE have a different understanding of what happened in the period preceding and during the blackout, with each side blaming the other for the outage, according to the sources.
At the centre of the disagreement is the role of Arca, NYSE's fully electronic stock market. The blackout, which saw trading in about 3,200 Nasdaq-listed stocks such as Apple Inc, Google Inc and Facebook Inc grind to a halt, was preceded by connectivity problems between Arca and the Nasdaq-operated Securities Information Processor (SIP). The SIP consolidates stock prices and distributes them to the market.
What's not clear is whether the problem at the SIP was caused by issues at Arca or technical flaws at the processor.
The inability of the two largest U.S. stock markets to come to a common understanding on what caused one of the worst market disruptions in recent memory underscores the complexity of the highly fragmented market and the difficulty of preventing future glitches. It could further damage investor confidence in markets, which have been roiled by a succession of high-profile technical glitches in recent years.
Much is at stake for the two exchange operators. Nasdaq and NYSE have a lock on the U.S. primary listings business and compete fiercely to woo companies to list on their respective markets. Major market debuts - Wall Street watchers have been tweeting about the possibility of a Twitter IPO for months - are huge public relations boons for exchanges.
MORE PRESSURE FROM RIVALS
The exchange operators are also coming under more pressure from rivals. On Monday, BATS Global Markets and Direct Edge said they would merge, in a deal that would vault the new company ahead of Nasdaq in U.S. stock trading. NYSE, which is being taken over by IntercontinentalExchange, is the No. 1 U.S. stock exchange operator.
The U.S. Securities and Exchange Commission has held several conference calls to get to the bottom of Thursday's glitch, with Chair Mary Jo White calling on Wall Street leaders to help ensure the "continuous and orderly" functioning of securities markets.
The agency asked Nasdaq and NYSE to come up with a timeline of events during one such conference call over the weekend, the sources said.
For now, the regulator has left the exchange operators to resolve the details, one source said.
SEC spokesman John Nester declined to comment.
Last week, Nasdaq Chief Executive Bob Greifeld told CNBC that the lesson to be learned from the outage was that the exchange needed to get better at "defensive driving" when dealing with other "market participants".
Sources close to Nasdaq said Greifeld was referring to Arca. Nasdaq believes Arca's connectivity problems ultimately led to a freeze in the SIP, prompting the exchange to shut down the connection just before the processor froze, they said.
Because of Arca's repeated attempts to connect to the SIP, the processor's memory reached capacity, its servers were overwhelmed, and it was unable to revert to backup systems, they said.
But people close to NYSE said while Arca had difficulties connecting to the SIP, such connection problems between exchanges are routine. So if the problem caused the SIP to shut down, it only exposed a flaw in Nasdaq's systems, they said.
NYSE believes that Arca's connection was inadvertently shut down for 15 minutes by Nasdaq, and that it was back up and running for 45 minutes without a problem before Arca voluntarily shut it down at Nasdaq's request, the sources said.
"Whether Arca was the catalyst or someone else was the catalyst, it was a disaster waiting to happen," said one person familiar with NYSE's thinking.