It’s Time to Fix the Stock Machines

Stock trading last month on the NASDAQ was halted for several hours due to yet another computer glitch at the world’s second largest stock exchange.

And then, it happened again on Wednesday, when a malfunction of a price feed overseen by NASDAQ created another trading halt.

The issue this week was resolved within minutes, not hours, according to a report by Whitney Kisling of Bloomberg. It led to a temporary halt on transactions of a limited number of stocks as opposed to the thousands of stocks that screeched to a halt on August 22.

Regardless of the number of stocks affected or the length of the market breakdown, NASDAQ’s faulty trading systems is a cause of great concern for both large institutional investors and moms and pops across America.

“’We are not inspired by the fact that this has become a recurring issue,” one institutional investor told Bloomberg’s Kisling. “This type of thing does an awful lot to kill investor confidence in the markets.’”

The Securities and Exchange Commission said on Wednesday afternoon it was in contact with the NASDAQ OMX Group after the brief outage in the system that was at the heart of the three hour shutdown in August, according to a report by Reuters.

This recent NASDAQ debacle reminds investors of the fragility of the electronic guts of the global stock trading system where investors pour pension and college savings money.

Indeed, the NASDAQ breakdowns follow almost a litany of other technology failures on Wall Street. Those include the recently botched Facebook IPO, the May 2010 flash crash and, most recently, Goldman Sachs flooding the U.S. options market with a number of unintended computer-driven trades in companies such as JPMorgan Chase and Kellogg Company.

The problem is so dire that a leading figure in Wall Street finance, Myron Scholes, said last month that Goldman Sachs and other big banks should be forced to incur huge losses if they make trading errors. The current industry practice simply allows Goldman and other banks to cancel those trades, walk away virtually unscathed regardless of the potential damage done to individual investors holding the securities.

“’If trades are not cancelled, and Goldman and others internalized all of the losses associated with program errors and bad algorithms, they would be more careful,’” Scholes told Financial Times reporter Neil Munshi.

It’s high time the technicians of Wall Street watch the machines to insure that the markets function properly. Investor confidence is suffering each time NASDAQ or Goldman Sachs computers blow up well-designed trading strategies for individual investors.

At the very least, the NYSE and NASDAQ, along with their partners at the leading Wall Street firms, need to agree on some protocol for compensating victims of technology glitches. That would allow the ordinary investor to once again have some degree of confidence in the markets. The regulators must police the computer-driven trading which seems to profit at the expense of ordinary investors.

Such action by the regulators would begin to shore up investor confidence in what is now a completely technology-driven stock market.

Zamansky LLC are securities and investment fraud attorneys representing investors in federal and state litigation against financial institutions, including Goldman Sachs.
About Jacob H. Zamansky 57 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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