Nasdaq Under Fire for Neglecting IT

BOSTON (05/26/2000) - A major electronic communications network, Instinet, said its customers were hobbled for an hour this week due to technical glitches in Nasdaq's trading system.

Instinet Corp., a subsidiary of Reuters Group PLC, said a significant portion of its data messages to Nasdaq Stock Market Inc.'s gateway wererejected by the exchange. For about an hour last Tuesday morning, bids for Nasdaq stocks made through Instinet weren't visible to traders.

This wasn't an isolated incident, charged Michael Galano, senior vice president and head of U.S. equities at Instinet. The Nasdaq computer system has been repeatedly plagued by similar glitches, slowdowns and other problems.

But Scott Peterson, a Nasdaq spokesman, said last Tuesday's glitch was an isolated event: There was a bug in a software update that affected a handful of firms. As a temporary solution, those firms reverted to the previous version of the software.

Since then, he said, the problem has been fixed.

However, Nasdaq has come under fire from everyone from Securities and Exchange Commission Chairman Arthur Levitt to one of its own board members.

"There is too much focuson marketing, on sponsoring the Super Bowl, on public relations, on the $37 million signin Times Square," said board member Alan Davidson, president of Smithtown, New York -based Zeus Securities Inc., head of the Independent Broker-Dealer Association and a critic of recent Nasdaq strategy.

The Instinet problem is only the latest example of its lack of focus on domestic technology issues, he said.

Not so, said Peterson. In January, Nasdaq upgraded from a single switch to a multiswitch link for SelectNet, the computer system that distributes market information to traders. And since then, system delays, if any, have been less than a second long, he said.

If any delays are being experienced, he said, the fault is with the member firms' computers. "Some of them have been using workstations operating at 200 MHz," he said, adding that Nasdaq's minimum standard is 750 MHz. "We are in the process of assisting those firms in upgrading their technology."

Meanwhile, the New York Stock Exchange (NYSE) may postpone its plan to go public in order to focus on the conversion to decimal-based trading from fraction-based.

Richard Grasso, chairman of NYSE, told reporters last week that although the NYSE could have gone public as early as late last year, it won't do so until the second half of 2001, at the earliest.

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