The New York Stock Exchange ground to a halt for nearly four hours Wednesday due to what officials said was a technical glitch, spooking investors and raising new worries about the soundness of the world’s complex financial markets.
America’s oldest exchange went dark from 11:32 a.m. to 3:10 p.m., its longest computer-related closure to date, freezing orders and redirecting trades through a sprawling network of other exchanges.
But the outage, the latest in a series of alarming glitches since the turbulent 2010 “flash crash,” has led to new questions about weaknesses in the technical underpinnings of some of the world’s most critical exchanges.
Market leaders and federal regulators have faced increasing pressure to follow through with reforms that would shore up the world’s increasingly intricate systems for buying and selling stocks.
In 2013, after technical problems sparked a three-hour Nasdaq collapse, Securities and Exchange Commission chief Mary Jo White ordered exchange bosses to improve the vulnerable systems holding up Wall Street, saying, “the investing public deserves no less.”
But market analysts said the SEC, which polices the markets, has struggled to keep up with the technological revolution that has come to dominate modern trading. It has also missed out on opportunities to address key vulnerabilities, opening the door to other damaging threats.
“The SEC has taken the totally wrong approach to market integrity,” said James Angel, an associate professor of finance at Georgetown University. The agency has said “all the exchanges have to have policies and procedures in place to make sure their systems don’t fail. . . . The real issue is: When they fail, what happens?”
The SEC declined to make White available for comment or to provide details as to how agency changes had helped make the exchange more robust. In a statement, White said, “We are in contact with NYSE and are closely monitoring the situation and trading in NYSE-listed stocks.”
But the uncertainty sparked by the exchange’s closure highlights the hidden dangers of financial technology that has quickly grown bigger, faster and staggeringly intricate, while providing little transparency when things go wrong.
“This kind of stuff is inevitable,” said Harvey Pitt, a Securities and Exchange Commission chair from 2001 to 2003 who helped oversee the market’s response to the 9/11 attacks. “But if it’s inevitable, that means you can plan for it,” he said.
It raises “a lot of questions, none of which New York at this juncture has taken any steps to respond to,” he said. “What confidence are we going to have that this isn’t going to happen anymore, or that what did happen was handled as good as anyone could have expected?”
The SEC was widely criticized for being ineffective after the 2010 “flash crash,” when the markets whiplashed more than 1,000 points within a few minutes in what regulators last year called “one of the most turbulent periods in the history of financial markets.”
After that crash, it took SEC officials nearly four months to unwind that day’s billions of orders and issue a report on what went wrong. The agency had started collecting trading data months earlier but could not yet pool them into a consolidated database, making even simple analysis difficult.
SEC officials have since spent millions of dollars on systems built to stream real-time trading data and adopted rules that would require market leaders to make sure their systems are able to handle heavy traffic and withstand security threats.
In November, White said one SEC framework, called Regulation Systems Compliance and Integrity, marked a “historic shift” in the agency’s market regulation, saying the rules would help “ensure that such systems operate effectively and that any issues are promptly corrected and communicated.”
The new rules gave private market forces more leeway in how best to keep their systems robust while giving the agency stronger enforcement powers to punish market players who ignore safeguards.
“SEC is not an IT specialist, so [the new rules] did not say you have to have this kind of hardware, these kinds of protections, these fail-safes,” said Charles Jones, a finance professor at Columbia Business School. “I don’t know that they’ll ever totally catch up, but the gap is a lot smaller now.”
But some traders said the new rules have done little to prevent most of the bottlenecks, failures or fatal software flaws that can cripple an exchange, or have focused too much on damage control rather than helping stop problems before they start.
“There will never be a 100 percent bug-free software program,” said Joe Saluzzi, a partner at Themis Trading, a brokerage firm. “But they should be able to flip a switch, go to a redundant system and keep going. That’s what regulators ought to have looked at. Why isn’t there a backup up and running? Where was that?”
During the early confusing moments of the turmoil on the NYSE, the SEC also provided little guidance on what traders or retail investors should do and declined to comment when asked several times by The Post to provide an update on what was going on. Eventually, the White House issued a statement referring media questions to the SEC. At that point, the SEC put out the brief statement by White and declined to comment further.
White, who was appointed SEC chair by President Barack Obama in 2013, has come under fire from Sen. Elizabeth Warren, D-Mass., for a lack of aggressive enforcement action for some of the nation’s top financial institutions.
In response, White said Warren’s criticism “will not detract from the work we have done, and will continue to do, on behalf of investors.”
The NYSE outage was unprecedented for its length, but the exchange has suffered from technical problems before. Last October, the NYSE’s data feed collapsed for 10 minutes. In 2009, trading for hundreds of NYSE companies was halted for half an hour.
The halt on the exchange came on a day when United Airlines, the nation’s biggest air carrier, grounded hundreds of flights due to a “router issue,” stoking worries that the outages were part of a coordinated cyberattack.
The White House said it saw no evidence of a malicious attack, and FBI Director James Comey said, “In my business, you don’t love coincidences, but it does appear there was not a cyber-intrusion involved.” Floor traders suggested the blame sprung from flaws in NYSE system updates, rolled out before the opening bell.
After opening amid concerns over China’s plunging stock market, the NYSE outage left little visible damage, with major stock indexes closing down only about 1 percent.
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Washington Post staff writers Ellen Nakashima and Thad Moore contributed to this report.
