Exchange Wars: Snafu Pits NYSE vs. Nasdaq

A Wyeth spokesman did not return calls seeking comment about the NYSE halt or the Nasdaq's canceling of trades, which raised the ire of some traders.

On Thursday, I reported on a hedge fund manager who had shorted Wyeth into its early spike in electronic markets and felt it was unfair for the Nasdaq to cancel trades based not on technical errors but concurrent rumors that Wyeth was going to be acquired by Pfizer (PFE Quote).

Another source, who also requested anonymity, described traders shorting Wyeth stock in electronic markets at above $60 and then hedging those bets with long trades at $58. The problem is the $58 trade stood, but the short sales above $60 were canceled. When Wyeth ultimately opened a little above $57, traders were sitting on a loss on shares bought at $58.

"If both sides of the trade would have been canceled -- fine," the source says. "But the cutoff level [of $58.55] left some people disadvantaged."

Fate of the Fabled Floor

The back story behind Friday's tit-for-tat is the heated competition for listings between the exchanges, as well as their philosophical differences about the benefits of Nasdaq's all-electronic platform vs. the NYSE's hybrid system -- the Big Board's attempt to drag its human-based auction system into the modern era.

Electronic trading, decimalization and the fragmentation of trade execution are contributing to a growing belief that human traders are heading into the dustbin of modernization, much like horse and buggy drivers of a century ago and travel agents in more recent times.