Glitch at NYSE Arca hits hundreds of exchange traded funds

A technical problem at NYSE Arca, the Big Board’s listing venue for exchange traded funds, stymied the end of the trading day on Monday, hindering the closing auction for 341 securities, NYSE said on Tuesday.

In a letter to clients on Tuesday, NYSE attributed the problem to a new version of software. Trading on the exchange has recommenced normally.

“I am contacting you personally to emphasise that we take these matters very seriously,” Stacey Cunningham, chief operating officer at the New York Stock Exchange, wrote in the letter.

The auction mechanism helps determine prices for a range of instruments, from mutual fund and ETF net asset values to the valuation of benchmark indices, thus making it a critical part of daily market activity. While stocks and ETFs trade at different exchanges no matter where they list, they typically revert to the listing exchange for the closing price.

NYSE is not making the list of affected securities publicly available, but has been contacting fund sponsors privately, a person briefed on the matter said. A spokeswoman for State Street Global Advisors, for example, said that 63 of their ETFs were affected.

The latest glitch in the US market plumbing highlights how reliant trading has become on technology, forcing traders and investors to adapt to periodic technical problems.

NYSE had two other software issues late last year. In early 2016, it migrated Arca to its new “state of the art” trading platform called Pillar, which it intends to use on all of its markets at some point.

NYSE used an alternative mechanism to determine closing prices for the affected ETFs. After the issue became clear on Monday, the exchange suspended trading on all securities at about 4:13pm ET and cancelled all open orders. NYSE members had until the opening of trading at 9:30am ET on Tuesday to make any claims.

“Market makers try to trade throughout the day, aggregate a position and at the end of the day offset that, so they can go home flat,” said Larry Tabb, founder of the Tabb Group.

“When at the end of the day the process fails, especially without warning, market makers wind up having to go home with a position or having to trade at other places. What happened yesterday, forced firms to either go home without executing their end of day trades, or trade in the after-market where there is much less liquidity.”

Some market participants said the glitch would have been a bigger issue had it happened on the Big Board where the underlying stocks in ETFs trade because that could have disrupted the calculation of indices.

Although NYSE did not name the specific ETFs that were affected, information they released showed that more than a thousand ETFs listed on NYSE Arca did not close by traditional auction on Monday. A spokeswoman said that not all of them had been affected by the technical problem since some ETFs do not close by auction for lack of interest.

Still, four of the five largest US ETFs — the iShares Core S&P 500 ETF, the Vanguard Total Stock Market ETF, iShares MSCI EAFE and the Vanguard S&P 500 ETF — were among those that did not close by auction. Their combined market capitalisation exceeds $300bn.

Also on the list was the SPDR Gold Shares ETF and iShares iBoxx Investment Grade Corporate bond ETF, both the largest US ETFs in their prospective sectors.

The SPDR S&P 500 ETF, the world’s largest ETF, did settle by auction, NYSE said.

In February, the Big Board’s owner, Intercontinental Exchange, disclosed that US regulators were seeking to charge the NYSE over a technology glitch that halted trading on the equity market for more than three hours in 2015.

Staff at the Securities and Exchange Commission have recommended filing civil charges against ICE over how it responded to the software configuration issue that led to the trading interruption, the company’s annual report revealed on Tuesday.

NYSE has said it disputed the proposed action.