NYSE Traders Resort to Processing Orders by Hand After Glitch

By Edgar Ortega and Lydia Thew

July 3 (Bloomberg) -- The New York Stock Exchange, which last month finished replacing a 25-year-old system so that trades are processed in 5 milliseconds, was forced to close the world’s largest equity market by hand yesterday after a 15 minute delay.

The Big Board postponed the end of business until 4:15 p.m. in New York to ensure all orders were executed properly, Larry Leibowitz, head of U.S. markets for NYSE Euronext, said in an interview. The NYSE’s 1,200 floor traders completed the closing auction manually, instead of using automated systems.

“Having people around as the fail-safe really came through at this point because that allowed us to have a close, where otherwise it might have been very difficult,” Leibowitz told Bloomberg Television on the NYSE floor. “Things will always happen with computers, just like they happen with people, but we want to make sure that we can recover as quickly as possible.”

Trading on U.S. exchanges a day before the observance of Independence Day was the slowest since Jan. 2. While NYSE Euronext handled record volumes in March without trouble, the network malfunction comes as the New York-based company seeks to maintain its lead in equity trading amid competition from Nasdaq OMX Group Inc., Direct Edge Holdings LLC and Bats Exchange Inc.

The exchange will work over the holiday-lengthened weekend to fix the problem, Leibowitz said. NYSE reported intermittent technical problems throughout the day, starting at 9:25 a.m. with issues with floor brokers’ handheld computers, according to notices posted on the company’s Web site.

Beach Visits Delayed

At about 3:30 p.m., when investors usually start submitting trades for the closing auctions, the exchange experienced a computer malfunction that interrupted the flow of orders.

Other exchanges, including the NYSE Arca all-electronic market, closed normally at 4 p.m. That allowed some traders to shrug off the Big Board delay as a minor inconvenience one day before the holiday.

“It’s going to affect people who want to go to the beach,” said Andy Brooks, the Baltimore-based head equity trader at T. Rowe Price, which oversees $268.8 billion.

In March, the Nasdaq Stock Market canceled the electronic auction that helps determine closing prices for stocks because of a technical issue. The NYSE extended floor trading on Sept. 30 to accommodate a late wave of sale orders; no exchange systems malfunctioned.

In June 2005, the NYSE halted trading for the day at 3:56 p.m. because of a communications problem. Since then, NYSE has overhauled its trading systems to cater to brokerages that rely on rapid-fire trading strategies, which account for more than half of trading volume in the U.S.

5-Millisecond Trading

Last month, the Big Board replaced SuperDOT, a trading system that debuted in 1984, with technology from NYSE Arca that processes trades faster and handles larger orders. Transactions are now executed in 5 milliseconds, down from 350 milliseconds in 2007.

NYSE floor brokers resorted to closing stocks the old- fashioned way yesterday, calling out bids and offers through so- called open outcry trading. About 216 million shares of NYSE- listed companies were traded between 4 p.m. and 4:15 p.m., or 5.5 percent of the total for the day, according to exchange data compiled by Bloomberg.

“We had to do everything by hand,” Alan Valdes of Hilliard Lyons Inc. said in an interview from the NYSE trading floor. “This was a small, minute thing. It didn’t affect our clients or prices.”

‘A Nonevent’

Outside the Big Board, traders including Bart Barnett at Morgan Keegan & Co. routed orders to so-called electronic communications networks.

“I’m trading everything through an ECN,” said Barnett, head of equity trading. “I don’t think it’s going to have a big effect on anything. It’s a nonevent.”

The NYSE glitch caused the calculation of the Standard & Poor’s 500 Index to be extended by at least 25 minutes beyond the usual 4 p.m. close. It fell 2.9 percent to 896.42 as of 4:29 p.m. in New York, almost a point lower than at 4 p.m.

“We are constantly going through a program of improving our systems, trying to make them more bulletproof,” Leibowitz said. “Things of the order of magnitude of today are very unusual.”

To contact the reporters on this story: Edgar Ortega in New York at ebarrales@bloomberg.net; Lydia Thew in New York at lthew@bloomberg.net