In Markets’ Tuned-Up Machinery, Stubborn Ghosts Remain.
A generation ago, when the stock market crashed on Oct. 19, 1987, the Nasdaq stock market appeared to have done much better than the New York Stock Exchange. While the Dow Jones industrial average fell 23 percent that day, the Nasdaq composite index was off just 11 percent.
It was not, it turned out, that Nasdaq stocks were more highly regarded. It was, instead, a question of the technology used.
At the New York Exchange, trading was still largely done by people, in person. At Nasdaq, trades were done by phone. The difference was that the market makers at the Big Board could not escape dealing with the flood of sale orders. But many Nasdaq market makers could, and did, decide not to answer their phones.
The Nasdaq market appeared to be operating, even though it really wasn’t.
Markets are far more automated and far more fragmented today. That makes trading much faster and — when everything works — more efficient.
And when it doesn’t? Chaos can briefly emerge while people try to figure out what went wrong with the computers.
That has been demonstrated twice this week. In the most publicized failure, the Nasdaq market found itself unable to put out stock quotes and halted trading in all its listed stocks for more than three hours on Thursday.
Most such problems last only a little while. On Monday morning, options markets were briefly roiled by a computer error at Goldman Sachs, which caused it to send out ridiculous trade orders for options on stocks whose ticker symbols began with the letters I, J or K.
In a less publicized problem, soon before the Nasdaq market had to be shut down on Thursday, the Arca electronic exchange, operated by the same company that runs the New York Exchange, NYSE Euronext, was unable to report trades on Nasdaq stocks whose ticker symbols came after TACT in the alphabet. It canceled some orders during the period, which lasted less than nine minutes. Other markets routed orders away from Arca.
http://dealbook.nytimes.com/2013/08/22/in-markets-tuned-up-machinery-stubborn-ghosts-remain/?hp