Nasdaq Said to Plan End to Role Running Stock Price System

Jan 14, 2014 2:08 pm ET

(Updates with background about the data feeds starting in third paragraph.)

Jan. 14 (Bloomberg) -- Nasdaq OMX Group Inc. gave notice that it no longer wants to run the marketwide quote service that broke down and froze thousands of its U.S. stocks in August, according to a person with direct knowledge of the matter.

Nasdaq’s decision means another company must be found to run the securities information processor, or SIP, according to the person, who asked to not be identified because the discussions are private. Nasdaq’s role is poised to stop around the end of next year, the person said.

The handling of feeds that pipe trading information from exchanges to millions investors around the world became a point of criticism for Nasdaq OMX and its chief executive officer, Robert Greifeld, following the August shutdown. SIPs operated by Nasdaq and the New York Stock Exchange process tens of thousands of quotes and trades each second and were portrayed as potential points of failure where the country’s electronic trading infrastructure is vulnerable.

Joseph Christinat, a spokesman for New York-based Nasdaq, declined to comment on the company’s plans.

The three-hour halt for thousands of U.S. stocks on Aug. 22 was caused by Nasdaq’s computers being overwhelmed by a deluge of data, and the failure of the exchange’s backup systems. The error prompted Securities and Exchange Commission Chairman Mary Jo White to demand the industry collaborate on making their technology more reliable.

Nasdaq Proposal

Among the recommendations from exchanges, Nasdaq proposed shifting the operation of its SIP to a separate legal entity, similar to the structure used by IntercontinentalExchange Group Inc.’s NYSE unit, a person familiar with the matter said in November.

The change was intended to focus accountability for the Nasdaq SIP on one entity that would have clearly defined standards for running it, the person said at the time. Nasdaq has now given notice that it no longer wants to run the SIP.

The system of data feeds that distribute American stock prices is “outdated” and needs improved oversight, transparency and backups, the group representing U.S. securities firms said in December.

“In today’s markets, the current system suffers from a lack of transparency and competition, questions of underfunding and insulated governance,” Theodore R. Lazo, the Securities Industry and Financial Markets Association’s managing director and associate general counsel, told the SEC in a letter. He said brokers and asset managers should be more involved with overseeing the feeds.

Sifma argued that a fresh review of the SIP system is warranted because the last evaluation happened when trade executions were measured in seconds. Now, with reaction times calculated in millionths of a second, “the time is ripe for reconsidering how the SIPs are governed, controlled and operate under the Commission’s oversight.”

--With assistance from Dave Michaels in Washington. Editors: Nick Baker, Chris Nagi