Until now, the exchanges have routed orders through a system called Intermarket Trading System. ITS is three decades old and observers are worried it won't be nimble enough to handle the potential increase in order traffic next week as exchanges and networks route more orders among themselves.
Most exchanges will begin moving away from ITS as the new rules go into place, but they'll do so gradually. Meanwhile, last week's lurching market demonstrated the risk of placing too much technological strain on the system. The market rout on February 27 overwhelmed NYSE's own messaging system, forcing delays in handling orders. By the end of the day, floor brokers were processing orders manually. Many stayed after hours to confirm trades. Messaging traffic was even worse last Wednesday, according to NYSE chief executive John Thain, who said it hit 20,000 messages a second at one point.
"One of the servers got overwhelmed," he said during a conference call arranged by Prudential Securities last week. "A certain number of orders that were sent to the exchange got caught in this queue and didn't necessarily get executed the way people thought."
Mr. Thain said the exchange had "rebalanced" its servers and would be adding capacity. But trade delays, which spread to other networks and exchanges though less noticeably, have increased the anxiety as Regulation NMS kicks in. The chief executive of one relatively new network, BATS Trading in Kansas City, said in an e-mail to a regular group of some 1400 readers that he was "concerned about the stability of the public markets in the transition to Regulation NMS." David Cummings, the BATS CEO, added, "I would urge all participants across the industry, especially those with high-speed automated trading models, to be mindful of any unnecessary loads their orders could place on the markets."
The messaging snafus were enough to pique the interest of the SEC, which has been talking to NYSE about what happened. Mr. Thain has denied news reports that a bigger investigation into this week's events is underway.
Most exchanges will begin moving away from ITS as the new rules go into place, but they'll do so gradually. Meanwhile, last week's lurching market demonstrated the risk of placing too much technological strain on the system. The market rout on February 27 overwhelmed NYSE's own messaging system, forcing delays in handling orders. By the end of the day, floor brokers were processing orders manually. Many stayed after hours to confirm trades. Messaging traffic was even worse last Wednesday, according to NYSE chief executive John Thain, who said it hit 20,000 messages a second at one point.
"One of the servers got overwhelmed," he said during a conference call arranged by Prudential Securities last week. "A certain number of orders that were sent to the exchange got caught in this queue and didn't necessarily get executed the way people thought."
Mr. Thain said the exchange had "rebalanced" its servers and would be adding capacity. But trade delays, which spread to other networks and exchanges though less noticeably, have increased the anxiety as Regulation NMS kicks in. The chief executive of one relatively new network, BATS Trading in Kansas City, said in an e-mail to a regular group of some 1400 readers that he was "concerned about the stability of the public markets in the transition to Regulation NMS." David Cummings, the BATS CEO, added, "I would urge all participants across the industry, especially those with high-speed automated trading models, to be mindful of any unnecessary loads their orders could place on the markets."
The messaging snafus were enough to pique the interest of the SEC, which has been talking to NYSE about what happened. Mr. Thain has denied news reports that a bigger investigation into this week's events is underway.
No comments:
Post a Comment