Group overseeing data processor agrees to Nasdaq's fixes

A software glitch had crippled Nasdaq's SIP in August

The committee that oversees the data processor that was at the center of a three-hour trading halt in Nasdaq-listed stocks in August agreed on Thursday to implement fixes demanded by the exchange, according to a source familiar with the situation.

The fairness and transparency of US equity markets depends in part on three securities information processors (SIPs) that provide investors with the same stock quotes and last sale prices. Nasdaq OMX Group runs one SIP and two others are run by units of IntercontinentalExchange Inc's NYSE Euronext.

A software glitch crippled Nasdaq's SIP in August, forcing the exchange to halt trading on its listed stocks. US Securities and Exchange Commission Chair Mary Jo White ordered the exchanges to come up with protocols to improve the resiliency of the processors.

In November, Nasdaq presented the SIP committee, which is made up of representatives from all US equity exchanges and the Financial Industry Regulatory Authority, with a list of 10 enhancements needed to improve its SIP.

Weeks later, the exchange gave notice that it intended to quit running the system at the end of its two-year contract because talks over implementing the fixes were taking too long.

At a meeting in Bonita, Florida, the committee agreed to implement all of the enhancements, having acted on only two of them prior to that, the source said. It also agreed that the SIP be registered as a limited liability company, similar to one of the NYSE-run SIPs.

The enhancements include expanding capacity, improving its testing environment, and enhancing information security. It will take around two years to complete.

It remained unclear whether Nasdaq will consider bidding to operate the system, which the company's management has said carries "infinite risk" and little reward, once its contract expires, the source said.

Nasdaq spokesman Rob Madden declined to comment.

Both NYSE and BATS Global Markets have said they would be interested in running the Nasdaq SIP, the costs of which come out of the revenues from the sale of its data.

Establishing the SIP as an LLC would limit the operator's liability for losses arising from any future issues.