Today regulators and the financial industry as a whole are examining Thursday’s outage at the NASDAQ and trying to determine how it could have been prevented. Is increasing the number of computers the answer to preventing this from happening again?
It’s a question that may be answered soon.
Job losses at NYSE Euronext
It sounds like there will be significant job losses at NYSE Euronext (NYSE:NYX) after the company merges with IntercontinentalExchange Inc (NYSE:ICE). Charlie Gasparino of Fox Business News reports that the new merged company’s chief executive officer, Jeffrey Sprecher, told his sources that they could begin slashing positions at NYSE after the merger closes this fall.
The sources said no final decisions had been made but that Sprecher had said he could slash positions at the new company by up to 30 percent. This would not only result in major job losses within the industry, but it could also push the company toward an operation which is run more on computers than people. IntercontinentalExchange Inc (NYSE:ICE) already tends to use more computers than people, and the company could make a similar push at NYSE after the merger is completed.
But are more computers going to help the situation or just hurt it? After all, computers may make operations more efficient and prone to fewer errors, but then we sacrifice human communication. The answer to this question is more complex than it seems.
So what exactly happened at the NASDAQ?
Jenny Strasburg and Jacob Bunge of The Wall Street Journal report that Thursday’s outage at the NASDAQ actually began with some sort of “connectivity” issue with NYSE Arca. The exchange is operated by NYSE Euronext (NYSE:NYX). Their sources said that connectivity problem triggered other problems which resulted in the halting of all trades of NASDAQ-listed stocks for three hours on Thursday.
Last night reports suggested that the exchange was having trouble just printing to the tape and getting the trading flow out. Matthew Phillips of Bloomberg Businessweek said it sounded like a very basic internal problem, which made it different than the flash crash which happened a little over three years ago.
He also pointed out that mistakes like this used to happen all the time in the trading pit, so Thursday’s outage isn’t something that hasn’t been caused years ago by a human-based environment. So do we really need more computers if the situation is similar to things that used to happen frequently?
After all, it would seem as if computers have reduced problems like these greatly by reducing the human element, but sometimes computers just can’t do a human’s job.
What will NASDAQ do now?
This morning Sam Mamudi and Whitney Kisling of Bloomberg report that NASDAQ OMX Group, Inc. (NASDAQ:NDAQ) will begin focusing on its “defensive driving” in the wake of the trading outage. CEO Robert Greifeld told Bloomberg Television and CNBC that they may develop a backup data feed to keep this from happening again.
And so, it would seem that more computers just may be the answer—at least in this case.
But what about the NYSE – ICE merger?
The question of job cuts at NYSE in the wake of the merger may also mean the addition of more computers, but the problem there sounds to be different than in the case of the outage at the NASDAQ. NYSE chief Duncan Niederauer reportedly told sources of Fox Business News that he believes more people are needed to handle NYSE’s “client-intensive businesses.”
And he may be right. Does anyone really enjoy calling businesses today and getting only a dumb machine without any options to press that are anywhere close to being related to what they’re calling about?
Perhaps what regulators and stock exchanges should be considering today is what the right balance of humans and computers is.