On January 25, the New York Stock Exchange said that human errors caused technical problems, resulting in some listed stocks being unable to conduct opening auctions, and trading was chaotic.
According to the NYSE, the failure occurred because staff tested the "Disaster Recovery configuration" that should not be used at the moment, and did not reset to the original configuration after the test was completed, which is designed to keep the exchange running smoothly in times of crisis.
Technical issues first arose shortly after the 9:30 opening that day, initially affecting only a small number of stocks, but later in the morning, the problem resurfaced and affected many more. At 11:32 a.m. that day, the exchange announced the closure of all trading. It was not until less than 1 hour before the close that the NYSE resumed trading.
Wells Fargo shares plunged as much as 15 percent, closing at $45.03 on Monday and opening sharply lower at $38.10 on Tuesday.
Walmart's market value seemed to have lost $46 billion, and AT&T "jumped up and down" between a 20% rise and a 21% decline in a matter of seconds.
The media quoted traders working on the New York Stock Exchange as saying that the situation was very chaotic:
In 30 years in this industry, I have never seen such crazy technical problems.
The exchange confirmed Wednesday morning that it would cancel more than 4,300 trades on 251 stocks. Banks, retailers and industrial companies were all affected, with the aforementioned human error causing stock prices to fluctuate up and down by nearly 25% in a matter of minutes. Ed Moya, senior market analyst at Oanda, said:
This glitch is a bit worrying. The affected companies are not those that are easy to manipulate, but giants from all walks of life.
The price that the NYSE may pay
The exact loss from the blunder remains unclear, but the loss for brokers and retail investors could be in the 8 figures, according to the media.
In a statement issued at 10:21 a.m. ET on Tuesday, the NYSE said:
The exchange is still investigating problems with the opening auction, and some symbols do not have an opening auction. The exchange is in the process of finalizing the list of shares. Affected member companies may consider filing a claim.
The U.S. Securities and Exchange Commission said on Tuesday it was investigating the technical issues that arose. Regulators introduced new rules in 2014 to fine exchanges for technical failures, and the New York Stock Exchange became the first exchange to be fined for nearly four hours in July 2015 after shutting down trading for technical failures.
James Angel, a professor of finance at Georgetown University, believes that the New York Stock Exchange will also be fined again for technical problems:
There are mistakes that shouldn't have happened, and the SEC expects them to put in place proper policies and procedures and make sure that something similar doesn't happen in the future. But when such things happen again, the SEC will surely come to you and punish you.
Although the exchange canceled thousands of trades executed immediately after the market opened, Angel said the total number of transactions indirectly affected by the error would be much higher, which could lead to lawsuits by those affected.
The media said that although the New York Stock Exchange said that the affected companies could claim compensation under the regulations. But under the terms of the exchange, only $500,000 a month is set aside to settle such claims, plus an undisclosed amount of "supplemental grants." If claims for compensation for the month exceed the total amount available, claimants receive only a portion of their losses.
Schwab, the largest retail brokerage in the United States, said it was disappointed with the NYSE's handling of technical system failures, with Schwab spokeswoman Mayura Hooper saying in an emailed statement:
The NYSE does not take full responsibility, retail investors will have to go through a lengthy process to correct order errors, and we cannot guarantee a satisfactory outcome for our clients.