Nasdaq prepares to reopen after glitch causes shutdown

By Chuck Mikolajczak and Rodrigo Campos

NEW YORK (Reuters) - Trading in a large part of the U.S. market came to a halt for much of Thursday after an unexplained issue shut down trading on Nasdaq-listed securities, the latest black eye for the U.S. securities trading business.

Nasdaq began resuming trades around 3 p.m. EDT (1900 GMT), roughly 2-3/4 hours after trading in shares of Apple, Google, Microsoft and more than 3,000 other U.S. companies had been abruptly halted.

"Any brokerage firm gets paid by executing orders," said Sal Arnuk, co-head of equity trading at Themis Trading in Chatham, New Jersey. "So yes, we are frustrated, and this hurts us, it hurts the market and it hurts public confidence."

All traffic through Nasdaq had stopped at 12:14 p.m. (1614 GMT), the exchange said, citing a problem distributing stock price quotes. A source familiar with the matter described the problem as a "data feed issue."

Shares of a single stock, Atlantic American Corp , resumed trading at about 3 p.m., and the rest of the market was expected to begin trading by 3:25 p.m.

Earlier, rival exchanges, including NYSE Euronext's New York Stock Exchange, had halted trading in Nasdaq-listed shares.

Trading of shares not listed on Nasdaq continued, but transactions could not be executed on the Nasdaq platform. Options trading was also halted.

The U.S. Securities and Exchange Commission said it was monitoring developments and in touch with the exchanges.

Nasdaq is the second-largest U.S. stock exchange operator.

The interruption means that investors had very limited market access to trade such familiar names as Apple Inc , Facebook Inc , Google Inc and Microsoft Corp . In all, Nasdaq lists about 3,200 shares.

"I can't remember this happening in recent memory," said Christopher Nagy, president of consultancy firm KOR Trading and a former head of trading at TD Ameritrade .

Before the halt, the Nasdaq Composite Index had been up 0.87 percent.

MANY EXCHANGE GLITCHES

Thursday's outage was the latest of a flurry of high-profile glitches that have become familiar to participants in U.S. stock markets.

"As we continue to eliminate human beings from the execution of security trading, this is the problem you run into," said Stephen Massocca, managing director of Wedbush Equity Management LLC in San Francisco. "These events are going to take place, given the level of automation."

On Tuesday, a technical problem at Goldman Sachs Group Inc resulted in a flood of erroneous orders being sent to U.S. equity options markets.

Two weeks earlier, on August 6, stock exchange operator BATS Global Markets was hit with a nearly hour-long outage on August 6.

Also hurting market confidence were problems last year related to Facebook's initial public offering, and a disastrous trading blowup at Knight Capital Group Inc that was a contributing factor to the eventual sale of that company.

In 2010, a "flash crash" wiped several hundred points from the Dow Jones industrial average in a matter of minutes.

"The frequency of technical issues affecting trading is a wake-up call to business leaders in capital markets," said Lev Lesokhin, executive vice president of Cast, a specialist in business software analysis. "They need to carefully scrutinize the structural integrity of their software systems."

Other trading venues, such as so-called "dark pools," which execute orders anonymously, also were affected by Thursday's outage.

"We have halted trading of the affected securities in our dark pool," said Mark Turner, managing director and head of sales trading at Instinet in New York. "I believe at this point most dark pools have probably done the same thing."

SEC

Thursday's outage could cause problems for Nasdaq at the SEC, which has recently cracked down on stock exchanges to beef up their compliance with regulations and make sure they are policing themselves.

SEC Chairman Mary Jo White, who joined the regulator in April, is a Nasdaq veteran, having served on its board as recently as 2006.

In May, Nasdaq agreed to pay $10 million, the largest penalty ever levied against a stock exchange, to settle civil charges over mistakes in the Facebook IPO.

The next month, the Chicago Board Options Exchange was ordered to pay $6 million to settle charges that it failed to properly enforce short sale rules.

The NYSE last year became the first exchange in SEC history to face a financial penalty after it supposedly gave some customers an "improper head start" on trading information.

In March, the SEC proposed rules to require exchanges and other trading platforms to be better prepared to handle major market disruptions, including those caused by technology glitches. Those reforms are still out for public comment. (Additional reporting by Herbert Lash, Samuel Forgione and Ryan Vlastelica in New York and Sarah N. Lynch in Washington, D.C. and Hezron Selvi in Bangalore; Writing by Dan Burns and Jonathan Stempel; Editing by Nick Zieminski, Andre Grenon, Kenneth Barry and Dan Grebler)