Here's What a Nasdaq Shutdown Looks Like
The hearts of traders the world over skipped a beat at 12:14 p.m. EDT today when the Nasdaq stock exchange came to a screeching halt. Still unknown "technical issues" within the Nasdaq's trading systems caused the company to stop all trading, leaving the market in limbo and the Nasdaq Composite flatlining for more than two hours.
This has affected everything from stocks to ETFs to options. Where available, traders were instructed to move trades to other markets. The Securities and Exchange Commission is already involved and is working with the Nasdaq to solve the issue.
This will have no lasting impact on the value of companies, but it's not good for investors' confidence in the markets -- particularly small retail investors. Incidents like the "flash crash," Facebook's disastrous IPO, and Knight Capital's collapse can leave some people feeling they can't trust the market to work the way it should.
Where the shutdown could have an impact is in trading instruments like levered ETFs, which require trades near the end of the day to settle up the market's daily moves. If there's not enough time to complete these trades, there could be chaos in these securities.
Not Nasdaq's first glitch
This isn't the first high-profile issue the Nasdaq has had. The Nasdaq OMX Group was fined $10 million for "poor systems and decision-making" during Facebook's IPO and paid $2 million to investors for losses.
For the Nasdaq OMX Group, this will create a challenge bringing companies to its exchanges in the future as well. Stock markets compete for company listings, and problems like this could help the New York Stock Exchange, run by NYSE Euronext, begin to take business. It could also lead to more regulation.
The SEC to the rescue?
This will no doubt result in more fines and scrutiny from the SEC, which is the regulator overseeing the Nasdaq. After the "flash crash" and other malfunctions, systems were improved, but glitches are bound to happen. The SEC has already proposed Regulation SCI to replace voluntary-compliance programs in order to ensure consistent policies and procedures in technical systems. This will now become a hot-button issue, and today's debacle could push the rules onto stock markets.
No time to panic
In a small but reassuring sign of sanity, other stock markets have actually moved slightly higher since the Nasdaq went dark. In the long term, a few hours of lost trading won't fundamentally change the value of companies traded on the Nasdaq, so there's no more reason to sell at 12:15 EDT than there was at 12:13 EDT. But in the crazy world of stock markets, it can be surprising to see sanity prevail at times like these.
Take a moment to think of the long haul
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The article Here's What a Nasdaq Shutdown Looks Like originally appeared on Fool.com.Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Facebook and NYSE Euronext. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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