September 17, 2013

The US options market halted trading yesterday after a problem arose with the consolidated quote feed that supplies prices to traders in what is the latest technological snafu to hit computer systems that are integral to trading infrastructure.

The options market was halted around 1:40 pm EST after the Options Price Reporting Authority (OPRA), experienced an outage. Trading resumed around 2:18 pm EST, according to an exchange source. OPRA consolidates last sale and quote information from the 12 participating US options market and disseminates it out to broker dealers, investors and third party vendors.

While OPRA is based in Chicago, Securities Industry Automation Corp. (SIAC), a subsidiary owned by NYSE Euronext manages the technology. The OPRA committee selected SIAC as the facility for gathering the last sale and quote information from each of the participant exchanges and consolidating and disseminating it to approved vendors, according to FAQs on its web site.

In today’sWall Street Journal, an NYSE spokesman said that OPRA was hit by “a quote-processing problem” that forced it to halt trading and took 10 minutes to resolve. The issue was traced to a routine upgrade made Friday to OPRA’s system. This led to “sporadic issues” with options quotes early Monday, which prompted OPRA to halt trading and restart the system.

According to a source close to the incident, who spoke on the condition of anonymity, OPRA began to have issues around 10:30 am surrounding the best bid and best offer. In addition, the source close to the incident, who listened to a post-mortem call, said NYSE Arca also made updates to its messaging software over the weekend to fix the previous problem it had with the Nasdaq SIP, but then withdrew the update.

This is the second time in a month that trading was halted due to a problem in a consolidated quote feed. On Aug. 22, Nasdaq OMX halted trading for three hours in Nasdaq-listed stocks after it had an outage in its securities information processor. Nasdaq had blamed NYSE Arca for spamming it with messages 26 times the average rate.

"This is just another event to give the public reason to pause and wonder if their is something fundamentally wrong with the financial markets," commented Sean Malloy EVP, head of sales & strategy SageTrader LLC, an execution-clearing firm that trades options, equities and futures on behalf of mid-size proprietary trading firms and hedge funds.

The key question is why this market data utility did not failover to a backup system, said an exchange source who listened to the industry call after the outage and trading had resumed.

The latest outage came only days after US exchange officials met with SEC Chairman Mary Jo White to discuss ways to work collaboratively to strengthen critical infrastructure and resiliency. During the meeting the SEC asked exchanges to work on an “action plan” related to preventing outages in their consolidated quote feeds. According to the Wall Street Journal, participants who attended the SEC meeting identified OPRA as “one single point of potential failure.”

Safeguarding the market data utilities is going to require some money. While exchanges have been investing in the speed of their trading engines, the market data utilities are viewed as an expense item.

Meanwhile the options markets are growing more complex by the minute. In 2000, daily volume was one million contracts split across five exchanges. Today, there are 14 million contracts traded and 12 exchanges, noted a Barrons’ article.

ABOUT THE AUTHOR
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in ...