Two rival exchanges, the New York Stock Exchange (Nyse) and Nasdaq OMX, are planning to provide back-up to each other's closing auctions in order to prevent a repeat of the outage that hit Nyse earlier this month.
The unprecedented move is designed to restore investor confidence following the computer error that struck Nyse on 8 July and left participants unable to trade for three and a half hours between 11.30am and 3.00pm.
While initial concerns about a cyber attack were refuted, the issue raised concerns about the market's resilience and disaster recovery plans. Rather than switch operations to its Chicago-based disaster recovery centre, Nyse decided to cease trading until the internal error was resolved.
Despite Nyse being the largest equities exchange in the US, trading is typically divided between several exchanges during the day and participants were able to trade Nyse-listed stocks at other venues during the outage. Importantly, the exchange was up and running before the day's end and the closing auction at 4.00pm.
Closing auctions are viewed as the most important part of the trading day by institutional investors given that they typically set the benchmark price for their daily valuations and also enable traders to execute large orders without creating a big impact on prices.
The plan submitted by Nyse and Nasdaq to the Securities and Exchanges Commission (SEC), will enable the two exchanges to use each others' prices should one of them be unable to hold a closing auction.
A statement submitted to the SEC by Nyse president Thomas Farley says: "We look forward to working with the industry and the SEC to implement this resiliency plan for the public markets on behalf of investors."