What is flash freeze
Flash freezing is a term coined to describe a specific failure, which occurred on the Nasdaq exchange. On the morning of Thursday, August 22 2013, started out like any other trading day on the Nasdaq. However, shortly after noon, the Nasdaq went dark, as all trade was stopped, sending investors, traders and regulators are trying to determine what happened.
By the end of the day, after the market opened in the last thirty minutes of the trades, Industrial index Dow Jones (DJIA), Nasdaq composite index and the S&P 500 index and all three will be closed, and the cboe volatility index jumped to 6.9 percent. When trading stopped on Nasdaq, securities listed on other exchanges continued to trade.
Breaking flash freeze
Regulators failed to identify the causes of freezing to flash quickly. Circuit breakers or trading curbs put in place by the Commission on securities and exchange Commission (sec) in 2012 to work correctly, but the event, as a result, many investors withdraw from the market, and those left begin eye on the market with caution.
A study of the Nasdaq to cause freezing of the flash based on the series of outages that occurred between the NYSE arca system and information processor for Nasdaq securities system (STS). Suspension of trading after a SIP, the system was unable to process the request he received for a quote. System rebooted because of high frequency trading, errors in the arca system. The preliminary findings that some of the problems were under control of the Nasdaq, but other reasons were of a common technological operation in the market.
Cessation of treatment led to an immediate freeze
Earlier, in 2013, the Nasdaq has reviewed the transactions SIP and found that it can handle 10,000 items per second on each of its 50 ports for General speed of processing 500,000 pieces per second. On the morning of August 22, the SIP received a few reports from the new York stock exchange (NYSE) arca. Arch processes exchange traded funds (etf), notes (ETN), vehicles (ETV), and products (ETP), as well as stocks and options. That morning Archa sent a few requests for a stream of invalid characters.
On request arca activity was more than 26,000 products per second on each port. To put this activity into context, average daily activity, as a rule, it takes about 1000 units per port, per second. Error when encoding GP not allowing the system to respond accurately to the queries, and the system is closed to maintain order in the market and fairness for all participants.
Laying the blame for the freeze flash
Representatives of the new York stock exchange rejected the idea that these communication issues would have to cause issues. As a result, the Nasdaq as the answer to some problems, but still pointed to problems with the instability caused by the updating of the electronic high-frequency or Algorithmic trading activity. They made changes to the software code underlying the SIP and modifications to protect the system from such a large volume of information requests in the future.
The identification and resolution glitch took only 30 minutes, but the system remained down for a long time for testing to make sure that SIP was the respondents to the market opening. Glitch stopped trading for a little more than three hours, after which trading resumed in the last half hour of trading after a five-minute grace period for the submission of quote and resolve trade imbalances.
Despite the long simple trading resumed relatively smoothly, although analysts at the time noted that his appearance on Thursday at the end of the summer, perhaps to mitigate his damages.
The damage from the flash crash
The damage to market participants was less radical than what happened during the flash crash in 2010, but many investors remained unconscious at the bus stop. Where freeze flash refers to the suspension of trading due to an unexpected event, the flash crash occurs when the deviation of market activity causes a rapid stock drop.
The amount of damage caused to any stop in trading largely depends on the timing and duration of outage. To flash freeze occurred at different times, when trade occurs in larger quantities than in August, the riots could be much more significant.
For example, if traders panic about their inability to trade, especially in a bearish or downward trend, a large number of sell orders on idle time, causing imbalance and a fall in the price of the Board as the exchange opens again.
The damage to investor confidence from the suspension of trading may be difficult to assess or predict. Investors may, as in 2013, to make a short stop in step, while a longer absence, for example, which lasted for several days will probably cause more serious problems like shutdown affect the market liquidity for traders with a longer and longer time horizons.