NYSE in the Hot Seat

Regulators look into trading issues.
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Updated from 10:52 a.m.

New York Stock Exchange

(NYX)

chief John Thain rejected the notion that the exchange's handling of a Tuesday trading surge is under investigation in Washington.

The Wall Street Journal

reported the

Securities and Exchange Commission

is looking into whether the NYSE's recent closure of one of its five trading floors hamstrung the Big Board's response to Tuesday's heavy volume. But Thain said Thursday that the NYSE's problems Tuesday were with its messaging system, not with trading.

On Tuesday, the

Dow Jones Industrial Average

dropped 416 points in its worst single-day pullback since September 2001.

Around 3 p.m. EST, the industrials, already down more than 200 points, plunged in just a matter of minutes, due in part to what appears to have been a heavy backlog of sell orders that had temporarily clogged the system. At one point, the Dow slumped 546 points before rebounding slightly.

Thain, the Big Board's CEO, says Tuesday's mishaps with the Dow Jones Industrial Average and the exchange's problems associated with accelerated order traffic were two separate issues.

"The server that was calculating the Dow Jones Industrial Average became overwhelmed by the traffic flow," Thain said on a client conference call Thursday hosted by analysts at Prudential Equity Group. "It basically slowed down and so the Dow Jones Industrial Average as it was being reported was actually higher than what it really should have been."

The index was eventually switched to use a backup sever, "which then caught up almost instantly and that resulted in a reported decline of about 150 points in 15 seconds," Thain said.

NYSE's glitch had to do with its messaging system, not with its hybrid trading platform.

"One of the servers got overwhelmed," he said. "It created a cue that resulted in problems at the close because a certain number of orders that were sent to the exchange got caught in this cue and didn't necessarily get executed the way people thought."

Thain added that the exchange "rebalanced" its servers so that the message load was "spread out more evenly." The NYSE will be increasing the capacity on its servers over the next few weeks.

When asked what exactly the SEC was looking into regarding Tuesday's trading problems, Thain quickly answered, "Nothing."

An SEC spokesman said in an emailed response: "Our staff is working closely with the NYSE and other markets to review Tuesday's events to evaluate how orders were handled and whether any enhancements to capacity management appear to be necessary."

On Thursday, the Dow Jones Industrial Average slipped modestly after a sharply negative start. It closed down 34 points at 12,234 after earlier falling as much as 206 points shortly after its 9:30 a.m. EST open.