(Bloomberg Opinion) — In Chicago, more than a thousand miles from Wall Street, the data backup center of the New York Stock Exchange (NYSE) must be on call around the clock in case of a stock market disaster. biggest in the world.
When the markets close, the routine is for NYSE staff to turn the systems on and off to make sure everything is working. But on Tuesday, an employee failed to properly shut down the disaster recovery system, and it caused… a disaster.
That human error, described by people with direct knowledge of internal NYSE trading, is what triggered wild swings in the market when trading opened Tuesday morning in Manhattan. The chaos affected more than 250 companies, including Wells Fargo & Co., McDonald’s Corp., Walmart Inc. and Morgan Stanley, sending stock prices soaring 25 percentage points in a matter of minutes in some cases.
The episode has led the exchange to cancel thousands of trades at a cost that has yet to be determined. Meanwhile, there is nervousness among market professionals and traders, awaiting more details from the exchange on what it publicly called a “manual error” related to its “disaster recovery setup”.
“They are going to have to come up with a better explanation” to reassure investors and regulators, said Joseph Saluzzi, a partner and co-founder of Themis Trading LLC, whose firm managed to avoid losses. “Although systems fail, and we understand that, there is zero tolerance when it comes to the opening and closing of the market.”
In simpler terms, according to one of the people, the mix-up was due to the backup system in Chicago being left on. That tricked the exchange’s computers into treating the 9:30 am opening bell as a continuation of trading. Therefore, they ignored the opening auctions of the day that clearly set the initial prices.
Without that routine step, offers arrived at all kinds of prices. That quickly activated mechanisms designed to prevent aggressive swings in the market, setting off alarm bells on trading screens everywhere.
NYSE executives spent hours trying to pinpoint the problem until they were certain there would be no further consequences, said the people, who spoke on condition of anonymity. Officials also began reviewing whether trades could be labeled “clearly wrong” under market rules and then cancelled. Shortly before 3 pm on Tuesday, the exchange announced that it would reverse the most extreme trades.
Nota Original:NYSE Mayhem Traced to Staffer Who Left Backup System Running (1)
–With the collaboration of Matt Turner.
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