Prof. Richard Sylla Quoted in the WSJ on NASDAQ’s Trading Glitch

NYU Stern Professor Richard Sylla was quoted in a recent WSJ Article on Nasdaq’s Trading Glitch: “Market Size + Complex Systems = More Glitches”

The root cause of Thursday’s Nasdaq Stock Market trading halt can be traced to a single word: complexity.

Trading in stocks today takes place on dozens of trading venues: 13 stock exchanges; some 40 dark pools, or private trading platforms; and countless “internalizers,” or trading operations in which stockbrokers match trades inside their own walls. Increasingly, all this trading takes place at speeds measured in the millionths—or billionths—of a second inside giant data centers housing state-of-the-art supercomputers.

While some traders and economists shrug their shoulders and write off recent problems—such as this week’s options trading snafu or the 2010 “flash crash”—as the price of progress, others say the problems are becoming so widespread that exchanges and big firms need to be held to a higher standard.

“It shows that corners are being cut and not enough is being spent on testing these systems,” said financial historian Richard Sylla of New York University’s Stern School of Business.

Nasdaq’s trading glitch started inside the so-called securities information processor, or SIP, data feed. The feed “provides continuous quotations from all market centers trading Nasdaq-listed securities,” according to the SIP plan’s website.

Because much of the market relies on the SIP feed to get Nasdaq stock prices, a glitch in the SIP feed can send ripples into the rest of the market that can become tidal waves.

Read the entire WSJ Article.

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