The global drive to make trading ever faster and more efficient through the use of technology was put to the test earlier on Tuesday when record trading volumes triggered by an equity market sell-off put the US system under severe strain.
In some cases the strain proved too much and the system cracked.
The New York Stock Exchange experienced delays on Tuesday afternoon as 2.41bn shares traded hands amid frantic selling. Sources close to the exchange said unnatural volume led to a spike in the traffic of messages carrying orders and information.
At about 3.40pm, automated trading orders began to get ‘hung up’ with many trades left unexecuted. The problem lay with the NYSE’s servers located in downtown Manhattan. The operation of handheld electronic trading devices used by brokers on the floor of the NYSE was also disrupted.
On days when volume is particularly high, the search for liquidity is more intense and, as the world’s most liquid stock market, the NYSE can come under the most severe pressure.
One trader said that, contrary to speculation, the technical problems were not due to a failure of the NYSE’s hybrid model, introduced last year, which combines open outcry and electronic trading. Instead, he said, when the electronic systems went down, trades were executed manually and provided a reminder of the importance of human involvement.
The heavy volumes also caused a sudden mid-afternoon plunge in the Dow Jones Industrial Average. It had lagged behind the falls of other markets because of a technical hitch in calculating the index. As with the problems at the NYSE, a failure of the company’s servers was behind the glitch.
Electronic systems coped with record volumes in other markets. The Chicago Mercantile Exchange achieved multiple volume records, including total daily volume of 13,719,685 futures and options traded, of which a record 10,926,638 contracts were traded electronically on CME Globex, 80 per cent of the total volume. The notional value of contracts traded at the CME was $8,000bn.
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