Nasdaq Halts Stock Trading Due to Unprecedented Technical Problems

The days of stock brokers in colorful jackets, roaming the floor of the stock exchange, are fading. Now, powerful computer programs dominate trading by sifting through reams of data and executing trades in fractions of a second. That makes trading faster and, arguably, more efficient. But it also introduces more possibilities for errors that can jolt the entire market.

Last year, BATS Global Markets tried to go public on its own exchange but had to back out after a computer error sent the stock price plunging to just pennies. Facebook's public offering last spring was also error-riddled, as technical problems kept many investors from knowing if their trades had gone through and left some holding unwanted shares. And in April, the Chicago Board Options Exchange shut down for a morning because of a software problem.

And all that's to say nothing of the 2010 "flash crash," where the Dow Jones industrial average fell hundreds of points in minutes before eventually closing 348 points lower. It was one of the first major blips that brought the potential dangers of computer-driven, high-frequency trading into the public sphere. "One of the things that we learned from the 'flash crash' … is that it's better to stop trading and re-open in a fair and orderly manner than it is to have messy trading," James Angel, a finance professor at Georgetown University who specializes in the structure and regulation of financial markets, said.

"I think people are so used to the fact that every once in a while the power goes out and a computer crashes," Angel said. "As long as the trading is fair and orderly I don't think that's going to deter people from investing."

Trading glitches can also change fortunes. A technical bug spelled the end for Knight Capital as a stand-alone company, and marred its long-held reputation as a stellar risk manager, after it sent the stocks of dozens of companies swinging wildly on Aug. 1 last year. It also left Knight, which takes orders from big brokers like TD Ameritrade and E-Trade, on the hook for many of the stocks that its computers accidentally ordered. Knight teetered near bankruptcy and this summer was taken over by the high-speed trading firm Getco.

___

AP Business Writers Christina Rexrode, Steve Rothwell, Marcy Gordon and Matthew Craft contributed.