Errors Mount at High-Speed Exchanges in New Year

Confidence-shaking technology mishaps have been an almost daily occurrence at the nation’s stock exchanges in the new year.
The latest example came Wednesday night when the nation’s third-largest stock exchange operator, BATS Global Markets, alerted its customers that a programming mistake had caused about 435,000 trades to be executed at the wrong price over the last four years, costing traders $420,000.
A day earlier, the trading software used by the National Stock Exchange stopped functioning properly for nearly an hour, forcing other exchanges to divert trades around it. The New York Stock Exchange, the nation’s largest exchange, has had two similar, though shorter-lived, breakdowns since Christmas and two separate problems with its data reporting system. And traders were left in the dark on Jan. 3 after the reporting system for stocks listed on the Nasdaq exchange, the second-biggest exchange, broke down for nearly 15 minutes.
The stream of errors has occurred despite the spotlight on the exchanges since a programming mishap nearly derailed Facebook’s initial public offering on Nasdaq last May and BATS’s fumbling of its own I.P.O. two months earlier. At the end of 2012, a number of exchange executives said they were increasing efforts to reduce the problems. But market data expert Eric Hunsader said that the technology problems have become, if anything, more frequent in recent weeks.
Matt Samelson, the founder of the industry consultancy Woodbine Associates, said, “Now that the world is watching, everyone is trying to be more rigorous. Their increased rigor is not yielding the benefits they hoped.”
Joe Ratterman, the chief executive of BATS, said Thursday that he viewed the firm’s announcement this week as a sign of markets that were functioning well, given his firm’s ability to find a problem that he called an “extreme edge-case scenario.”
“We discovered this problem and reported it — it’s a positive thing,” Mr. Ratterman said. “It’s being covered as if it’s a negative issue, and a continuation of a series of problems.
“Call me an optimist, but I see positive indications of the markets moving forward,” he said.
Regulators and traders have said that malfunctions are inevitable in any complex computer system. But many of these same people say that such problems were less frequent before the nation’s stock exchanges were thrown into a technological arms race in the middle of the last decade as a host of upstart exchanges like BATS challenged incumbents like the New York Stock Exchange.
The nation’s 13 public stock exchanges now compete fiercely to offer the latest, fastest and most sophisticated trading software, in part to appeal to the high-speed trading firms that have come to account for over half of all stock trading. With each tweak comes a new opportunity for a mistake to be inserted into the system.
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