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.
The exchange returned to a normal trading day Friday, with the Nasdaq composite rising 19 points, or 0.5 percent, to 3,657.
Thursday’s outage though “puts a lot more wind in the sails” of regulators’ actions, said James Cox, a Duke University law professor and expert on the Securities and Exchange Commission.
The SEC plans to finalize rules that would put stricter oversight on exchanges, requiring them to routinely test their trading systems, for example. And the Commodity Futures Trading Commission is moving toward reining in high-speed trading.
For Nasdaq, the apparent system failure brings “a gigantic reputation loss,” Cox said. “Three hours without a market: that’s crazy.”
The SEC could end up fining Nasdaq, and the exchange might be put under supervision by an outside monitor, Cox suggested.
The CFTC expects to put forward next week possible approaches for new restrictions and oversight on high-speed trading, two people with direct knowledge of the matter said Friday. They said it was a first step toward action by the agency, presenting possible options for new regulations to spark public debate.
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.