The glitch that halted trading on the Nasdaq for three hours last week has been traced to faulty software.
On Thursday, Nasdaq OMX Group (NDAQ) said that an investigation into the “flash freeze” found that a surge of trading data from an outside exchange overwhelmed Nasdaq’s backup software causing the system to crash. The failure prompted renewed questions about the reliability of the electronic systems that power the exchange, the New York Times noted.
According to a preliminary report, attempts by NYSE Euronext‘s (NYX) Arca exchange to deliver trade pricing data to Nasdaq were unsuccessful. Arca tried to connect to Nasdaq more than 20 times. When it couldn’t connect, it transmitted a large amount of zero-dollar quotes that proved too much for Nasdaq’s system to cope with.
Nasdaq tried to switch to backup systems to handle the wave of data, only to hit a flaw in software governing the backup systems. Shortly after noon on August 22, the exchange shut down. Though the problem took about half an hour to resolve, the exchange didn’t resume trading until 3:30 p.m. that day.
A Nasdaq official said that Nasdaq’s internal software caused the crash, not Arca. In a release, Nasdaq called the event “deeply disappointing” and “unacceptable.”