A Friday data error that stalled trading in some instruments on the Nasdaq Options Market is a signal of faster trading requirements in the US options market, which may see such glitches become commonplace, one options exchange expert has said.
Nasdaq experienced an issue with the dissemination of Options Price Reporting Authority (OPRA) data that affected one of its three options markets at 11.42 for trading symbols A-M, but an automated back up system was triggered, allowing normal trading to resume by midday.
A number of participants quizzed, including derivatives agency broker GFI, stated the brief outage did not affect the day’s trading.
Howard Tai, senior analyst for consultancy Aite Group, who in October released a report predicting the number of options glitches would rise in coming years, told theTRADEnews.com the error was evidence of the faster computational speeds of modern options exchanges.
“The machines that drive options exchange are running at super fast speeds nowadays and they all have to coordinate multiple pieces of information that form the underlying derivatives quotes, so it's not a surprise that exchange’s IT related errors are increasing in frequency,” he said.
Tai said errors experienced by one venue alone would be relatively innocuous, letting users route orders to other exchanges, but those that affect the market as a whole and stall trading across the 14 US options trading venues could be debilitating.
“If an options exchange experiences technical glitches on a consistent basis, it will lose market share as system reliability becomes a determining factor in which trading venues the end users will select, alongside cost and liquidity considerations,” he said.
The error raises on-going questions about the resilience of US trading venue technology in the wake of high-profile errors, including one that stalled trading on Nasdaq’s equities exchange for three hours in August last year.
Uncertain SIP future
Nasdaq this week was reported to have decided to step down as a provider of one of the securities information processor (SIP) service providers for US equities, after slow negotiations with fellow equities exchanges to improve SIP technology.
A SIP error was the reason for the August Nasdaq glitch and triggered regulator the Securities and Exchange Commission to call a wholesale review of exchange technology and processes to avoid future errors.
The SIP disseminates trade data from the Nasdaq equities exchange and is a vital source of trading data, although most institutional investors rely on faster data feeds sourced from brokers directly connected to the exchange.