The Toronto Stock Exchange suffered “deep, self-inflicted wounds” Wednesday, after it was forced to shut down trading for the day when its computer system crashed.
“This is not the Middle Ages. You can't afford to give yourself deep, self-inflicted wounds,” said Louis Gagnon, a finance professor at Queen's University in Kingston, Ont.
“It's absolutely crazy in this day and age – when all exchanges are supposed to compete globally for order flows using high-tech systems. Traders around the world will look at this and say it is unacceptable.”
The TSX said early in the day it experienced a “service interruption” on its data feeds that provide real-time data for stocks on both the Toronto Stock Exchange and TSX Venture, such as trade information, quotes, corporate actions and index information. The data produced by these feeds are also available on a time delay, and are often used on financial websites.
After halting all trades and issuing sporadic updates via its website, officials finally pulled the plug around 3 p.m. Mark Jarrett, director of equity operations, said in a statement that the market would operate in a “pre-market mode” Wednesday evening, so traders can reconcile trades they thought they were making earlier in the day.
“We will be working internally through the night and remain confident all systems will be restored and fully operational for business as usual tomorrow,” Mr. Jarrett said in a statement.
It's not the first time the exchange has faced technical problems. When the S&P/TSX composite index was launched in May, 2002, to replace the TSE 300, traders had to deal with quotes that were updated every 15 minutes rather than every 15 seconds.
In October, technical problems saw 38 shares halted at the open for more than two hours because of a glitch. On Nov. 10, problems forced the exchange to open 10 minutes late. Regardless of what happened this time, Sloan Levett, director of wealth management with Fuller Landau LLP in Toronto, said it is essential the exchange deal with the problem with as much transparency as possible.
“People need to know that something like this can't happen again,” he said. “You can easily see this causing concern. We're living at a time when people are worried about having their money in chartered banks. Everyone is hypersensitive, and need to be comforted and reassured.”
While Toronto markets were closed on Wednesday, investors were still able to buy Canadian stocks on U.S. exchanges or through alternative trading systems such as Pure and Alpha.
On a typical day, Pure chief executive officer Ian Bandeen said the exchange sees 12 million shares traded on its system. That number had doubled by late in the day Wednesday.
“That's still a pittance compared to what the market should be doing as a whole,” he said, adding about 450 million shares can trade on a typical day on Canadian markets. “I have a lot of empathy for the TSX, it's a delicate, complicated system. Nobody benefits from this kind of thing. Yes, we'll have higher numbers than normally, but in the giant context of diminished volume it's just not worth it.”
While the alternate exchanges picked up volume because of the shutdown, analysts don't expect Canada's largest exchange to suffer any long-term losses as a result. The systems are relatively new – Alpha started processing trades earlier this month, Pure in September, 2007.
Jeff Fenwick, an analyst at Cormark Securities who has a “buy” rating on TMX Group Inc., the exchange's parent company, said the upstarts have yet to prove they can be a reliable alternative to the TSX. Traders at his company decided to hold off on trading Wednesday rather than send orders through unfamiliar systems.
“They're sitting around twiddling their thumbs, they aren't out trading on the other platforms,” he said. “I expect that is the case elsewhere, as well. The reality is people won't be happy, but they aren't going to move. Running to the other systems today just isn't viable.”
Raymand James spokesman Peter Kahnert said it's not just a matter of flipping a switch, and redirecting trades away from the TSX. The exchange's closing was “pretty significant for all investment dealers. It's created a big headache.
“Obviously it has hindered trading, and hindered our ability to do business for our clients.”
With files from Richard Blackwell
