A computer error stalks the markets—again. An order on a relatively obscure derivatives index in Stockholm yesterday was asking to buy futures contracts on Swedish stocks valued at 131 times the country’s entire GDP. The order made the exchange go “bananas” and caused Nasdaq OMX to stop trading in Swedish derivatives for four hours.
This was no “fat finger” incident, where a trader accidentally types an extra few digits or the wrong numbers in an order. Instead, a software glitch magnified an order, Nasdaq OMX spokesman Carl Norell told Bloomberg News. “Our system misinterpreted a certain order category and communicated a value that was way too high into the book,” he said.
The interruption was in a small corner of the market, but it’s just the latest in a string of technical problems that have halted trading. As more trading is driven by the algorithms of high frequency traders, one glitch or bad order can spark major disruptions. The 2010 flash crash caused $862 billion in stock values to vanish from the market temporarily, and technical problems have haunted other exchanges since, including a flood of orders in oil markets; Knight Capital’s accidental stock-buying binge; and problems processing orders on the NASDAQ during Facebook’s market debut.
Exchanges have made some reforms–automatic circuit breakers stop trading during times of extreme volatility, for example. But dealing with the increasingly complex web of electronic exchanges and high-frequency trading still is one of the major challenges facing the new chair of the Securities and Exchange Commission, Bloomberg Businessweek reports in this week’s issue. The Swedish kerfuffle is now one more event to pile on the calls for reforms.
