The NYSE resumed trading after being down for nearly four hours on Wednesday. On a day mired by technical glitches, the New York Stock Exchange found itself on the losing end of an unprecedented technical malfunction that occurred at 11:32 a.m. EST. All outstanding orders at the time of the malfunction were cancelled. Trading on the exchange resumed at approximately 3:10 p.m. EST.
Several federal agencies and the White House released statements indicating that the problem was not a result of an act of cyber terrorism, an initial concern in the context of the several coincidental system failures around the country, including (but not limited to) United Airlines’ system failure (reportedly caused by a faulty router) and the Wall Street Journal’s homepage failure (most likely a result of traffic volume related to the NYSE failure). All of the agencies continued to monitor the situation well into the afternoon and are expected to conduct investigations to pin down the exact cause.
The NYSE’s IT staff immediately began working to bring the exchange’s servers back online. While the exact cause is unknown, there is some speculation about whether a system update that was performed recently may have been the culprit. According to NYSE President Tom Farley in an interview with CNBC this afternoon, “there was a configuration failure” and they have “no evidence whatsoever to suspect that [the failure] was external.”
For most investors, the NYSE’s suspension of trading was a non-issue. The NYSE is merely the most well known of dozens of networked exchanges throughout the United States. Brokerage firms, such as T.D. Ameritrade, Fidelity Investments, and others continued to place orders throughout the day. In fact, institutional and retail investors would not have even known the NYSE was down if they didn’t happen to catch the news. This reality is evidence of the nature of the financial markets in the U.S., which are extremely efficient and able to back each other up when there’s a failure.
As IT systems have become increasingly robust, they’ve been spread out among a network of exchanges. Most of the integrated systems that function on behalf of investors simply search for the best available price on a buyer’s behalf when an order is generated, paying no attention to the specific exchange that would fill the order. As a result, even NYSE-listed stocks continued to trade throughout the day on the other exchanges.
One of the more significant concerns, which was avoided by virtue of the exchange being brought back online prior to the end of the day, was whether a proper “closing” price could be obtained for all NYSE-listed securities. Most mutual funds, exchange traded funds, and other fund groups use NYSE closing prices in order to establish their daily closing values. Without a functional NYSE, this would have been problematic. NYSE officials never indicated what their contingency plan would have been in the event of such a failure. Every registered exchange is required to have a disaster recovery plan (DRP) on file with the SEC, which presumably has this information.
There is a general concern about how consumers will view the situation with respect to the safety of their investments. No consumers appear to have lost any money as a result of the glitch on the NYSE. Since all other platforms and exchanges continued to function, consumers were largely unaffected. If anything, consumers should be encouraged by the fact that the system was brought back online as quickly as it was.
While the NYSE’s normal IT systems failed, the fact that such a complex system was brought back up in less than four hours and that a failure of this magnitude resulted in no apparent collateral damage is a testament to the quality of the systems in use by the NYSE and other exchanges. Hardware and software fail. The bigger question is: When the inevitable failure occurs, how catastrophic is it? Disaster planning and recovery are a normal part of IT planning and implementation. In the light of that reality, it would appear that this is one of the larger IT successes in recent memory.
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About the Author
“Trey” Marshall D. Gunn, III, CPA, CGMA, MAcc is a Partner and Director at GunnChamberlain, P.L., CPAs. Trey has been with the firm since 2003. He provides consulting, financial and tax planning services to businesses and individuals. These services include retirement and investment planning.
Trey is a member of the Florida Institute of Certified Public Accountants and the American Institute of Certified Public Accountants. He has been involved in a number of speaking engagements on topics varying from personal financial planning to personal tax and small business accounting. He currently serves as a board member of the First Coast Chapter of the Risk Management Association, a member of the UNF Coggin College of Business’ Business Advisory Council, and as a Director for the Florida CPA PAC North. Additionally, he serves the Florida Office of Insurance Regulation as a governor-appointed member of the Continuing Care Advisory Council (term 2/23/2015 – 9/30/2016). He was recently appointed to the FICPA’s Investment Policy Committee and will serve beginning July 1, 2015.