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At Nasdaq OMX Group Inc., which operates the Nasdaq Stock Market, there are these things the company calls "systems issues" that crop up from time to time. The rest of the world calls them disasters. And today was a heck of an example, with the Nasdaq halting trading in stocks and options for much of the afternoon.
It's enough to make an investor want to short Nasdaq -- except that wasn't possible during the trading halt, because Nasdaq's stock trades on the Nasdaq. Another computer malfunction, we're told. Or maybe a squirrel chewed through the wrong wire somewhere. Nobody knows what happened yet, and the fat-finger excuse doesn’t work anymore.
We will probably get some massive, impenetrable white paper of a report from the regulators a year or so from now, like the Securities and Exchange Commission did after the so-called flash crash of May 2010. And it will have lists of recommendations that will be outdated by the time it comes out. By which point there are bound to be more debacles. It's miraculous that trading halts like the one today don't undermine investors' confidence more.
Don't say Nasdaq didn't warn anyone, though. Here's a cluster of some of the risk factors from Nasdaq's most recent annual report. Note the first one, where the company said its systems issues were remedied after last year's fiasco when Facebook Inc. had its initial public offering.
"We may experience losses and liabilities as a result of systems issues that arose during the Facebook, Inc. IPO."
"In connection with the IPO by Facebook on May 18, 2012, systems issues were experienced at the opening of trading of Facebook shares. Certain of our members may have been disadvantaged by such systems issues, which have subsequently been remedied."
"System limitations or failures could harm our business."
"Our businesses depend on the integrity and performance of the computer and communications systems supporting them. If our systems cannot expand to cope with increased demand or otherwise fail to perform, we could experience unanticipated disruptions in service, slower response times and delays in the introduction of new p