Nasdaq Execution System Restored After Morning Technical Glitch
The Nasdaq's automated dealer-to-dealer communications service, SelectNet, which is heavily relied on by brokerages and trading shops to execute trades in Nasdaq securities, wasn't working for the first half-hour of trading this morning.
The system, which froze after Nasdaq officials unsuccessfully attempted to increase the system's capacity, is now working and trading has resumed normally.
Nasdaq dealers use SelectNet to negotiate terms and execute trades between each other, but the system went down at 9:15 a.m. EDT, hindering dealers' ability to execute trades in the fashion they're accustomed to. Between the opening bell and about 10 a.m., dealers had to rely on proprietary trading systems, ECNs such as
Instinet
(which are not limited to dealers) and that quaint device called the telephone, which is hardly used anymore.
When SelectNet is down "you're not able to execute," said Kurt Soderberg, a trader at
Miller Tabak
. "You get back messages that it's been rejected, or you get error messages that say 'invalid function.'"
According to Nasdaq officials, the problem this morning stemmed from the attempt to further divide and increase the system's capacity to facilitate trades. Earlier this year Nasdaq divided its system of routing orders into four different quadrants, allocating the various stocks into four groups according to the first letter of a particular company symbol.
These four separate quadrants were moved to separate mainframes to increase the system's capacity. This morning, Nasdaq attemped to add a fifth quadrant, but "there was a step left out in the enabling process," according to Nasdaq spokesman Scott Peterson. As a result, the system went down at 9:15 a.m.
Nasdaq attempted to re-enable the system at 9:50 a.m., but that effort was unsuccessful. Miller Tabak's Soderberg said he noticed at that time that some trades appeared to go through, but by about a minute later the system wasn't working again.
Eventually, Nasdaq abandoned the effort to add a fifth quadrant and reverted to its old configuration -- and the system was restored at 10 a.m. It's clear that trading wasn't completely crippled -- about 200 million shares had traded by that time.
Nasdaq officials still plan to divide the system into five quadrants, but Peterson didn't know when this would take place.