The New York Stock Exchange said Tuesday it would suspend trading in some stocks after problems with its initial public offering caused sharp swings in blue-chip names such as ExxonMobil and McDonald’s.
The U.S. Securities and Exchange Commission said it was looking into the problem after NISE said a “systemic problem” affected the opening of about 250 stocks.
The exchange said it did not conduct opening auctions for the affected stocks, meaning they began trading without the correct “Limit Up Limit Down” ranges, which are designed to prevent securities from trading at extreme prices.
The error sent some stocks like Wells Fargo down more than 10 percent in the open, while others, like AT&T, rose briefly before trading was halted. NISE said its systems were working properly about 20 minutes later, and said trades executed outside the appropriate limits would be declared void.
Shares of the Intercontinental Exchange, which owns NISE, fell 2.2 percent on Tuesday, compared with a 0.1 percent drop in the benchmark S&P 500 index.
NISE’s initial auctions use a combination of algorithmic quotes and physical auctions managed by market makers at firms such as Citadel Securities, Virtu and GTS.
The exchange told market makers that the problems were caused by an internal problem rather than any ties to the market makers, three people familiar with the discussions said.
Michael Blaugrund, NISE’s chief operating officer, said in a statement late Tuesday: “Events like this are extremely rare and we thoroughly examine daily activities to ensure the highest level of resilience in our systems.” We ended the day with a normal market close and expect a regular opening on Wednesday.”
One market maker estimated that more than $1 billion worth of orders were affected, with the volume of shares traded on the open down nearly 90 percent compared with recent averages.
The SEC said “staff are reviewing the activity and are in contact with the relevant exchanges,” while an employee of the market maker said it had also spoken with the regulator.
The issue arose just weeks after the SEC announced plans to channel more trading through the exchanges’ auction systems, and was immediately attacked by opponents of the changes. “The SEC advocates that all retail order flow go to auctions on exchanges.” This does not bode well,” said one person involved in the lobbying.
A mistake this big is rare but not unheard of for major exchanges, which typically pride themselves on being resilient to any unexpected volatility or technical issue.
The head of the Tokyo Stock Exchange resigned in 2020 after a hardware failure halted trading of stocks at the world’s third-largest stock exchange for a day, while the Toronto Stock Exchange suffered brief outages last November and in the early days of the coronavirus pandemic.
In 2018, the SEC fined NISE $14 million for a range of issues, including trading disruptions.