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From Securities Regulation Daily, August 23, 2013

SEC Chair and NASDAQ’s CEO address yesterday’s market glitch

By Jacquelyn Lumb

SEC Chair Mary Jo White released a statement last evening about NASDAQ’s temporary halt in trading to address a technical problem. Price quotes were not being disseminated by the Securities Information Processor (SIP), which consolidates and disseminates all prices for the industry. White said that while the halt was temporary, it was a serious problem and heightened the need to address the technological vulnerabilities of the exchanges and other market participants. White said she would pursue the SEC’s proposed rules to promote the integrity of the markets. She also plans to meet with the leaders of the exchanges and other major market participants to accelerate efforts to strengthen the markets.

Trading Interruption. NASDAQ OMX described the problem as a connectivity issue between an exchange participant and the SIP. The technical issues were resolved within the first 30 minutes of the trading halt, but the market remained closed while NASDAQ OMX, other exchanges, regulators and market participants coordinated to ensure an orderly reopening of trading in NASDAQ-listed securities. Once trading resumed, the balance of the trading day concluded as usual.

Greifeld’s Response. NASDAQ OMX CEO Robert Greifeld spoke to CNBC this morning about the glitch. In response to whether the organization has invested enough in the integrity of its systems, given the magnitude of some of its recent problems, he said NASDAQ OMX must get better at what he called defensive driving—where another event triggers a problem with its system. He declined to name the entity which may have contributed to the problem.

Greifeld also replied that he could not argue against more than one consolidator in response to a question about whether there should be more. Greifeld took issue with a statement by former SEC Chair Arthur Levitt who criticized the lack of disclosure and transparency about the problem. Greifeld said the main focus had to be on the operational aspect of the problem, solving the problem and coordinating with the others who were affected. He said it was not NASDAQ OMX’s job to talk to the press while addressing the outage.

Greifeld said the market was halted to ensure that no one had an advantage or was at a disadvantage when SIP stopped disseminating consolidated quotes and trades. When asked about the organization’s push-back to the SEC’s proposed market integrity rules, Greifeld said, as with any proposal, there are always details to quibble about, but he agreed with the spirit of the rules.

Greifeld said it will never achieve perfection, but NASDAQ OMX is spending a lot of time and money on ensuring a level playing field and maintaining confidence in the markets. The problem was handled in a professional way and should not affect the exchange’s IPO business, in his view. Greifeld added that NASDAQ OMX operates 70 markets around the world and its track record is superb.

Senator Warner calls for investigation. In a letter to SEC Chair White, Senator Mark Warner (D-Va.), a key member of the Banking Committee, asked the Commission to conduct a thorough investigation of the market glitch and report back to Congress on what steps can be taken to ensure that such disruptions can be avoided in the future. Noting that securities markets need prudent regulation to ensure their integrity, Senator Warner emphasized that a timely report on this market malfunction and proposals on how such disruptions can be avoided in the future, along with strong and appropriate remedial measures, will go a long way towards restoring confidence in the financial markets.

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