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3/27/2012
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BATS Blames Software Bug For Trading Outage

Stock exchange operator BATS Global Markets says "freak one-time event" that interrupted trading of Apple shares on Friday boiled down to an error in an order-matching program.

Officials at stock exchange operator BATS Global Markets said that a software bug caused an outage that halted trading of its own shares Friday, the first day of its initial public offering (IPO), and also put a temporary stop to trading in shares of computer giant Apple.

"BATS experienced a serious technical failure Friday morning and I want to apologize for not measuring up to the level of excellence that you have come to expect from us," said BATS CEO Joe Rattereman, in a letter to customers.

BATS's exchanges handle 11% of all U.S. stock trades. The Lenexa, Kan.-based company has said that a program that matches orders for stocks with symbols between A and BFZZZ crashed. The trouble included shares of Apple, as BATS's servers began processing orders for the stock that were below its market price.

The crash caused BATS's own share price to fall from its IPO opening of $16 to just 2 cents. Following the glitch, BATS officials indefinitely postponed the company's IPO.

[ Apple investors will get their first dividend since 1995. See Apple Announces Dividend, Stock Buyback. ]

"Technology implementations are prone to failures and unexpected outcomes, even after going through rigorous testing," said Ratterman, who added that BATS, which operates the BZX Exchange and the BYX Exchange, has historical uptime of 99.9% on BZX.

In an e-mail to fellow traders, BATS founder and board member David Cummings said programmers at the firm are working to fix the bug. "Ironically, the software bug itself is probably the easiest to thing to correct. The fix should take less than a week. Given the importance, they need to test and retest the code for a couple of weeks."

Cummings called the incident "a freak one-time event," and noted that, "The BATS matching engine has literally matched BILLIONS of orders without problems. However the code to open an IPO is new. It has been tested in the lab, but until this week not in real-world production."

Cummings dismissed criticisms that events like Friday's outage highlight the risks of high-frequency, electronic trading. "Some in the media love to overhype the occasional glitches. They envy people who make money, but it is what makes this country great."

Larry Tabb, founder and CEO of financial markets research firm TABB Group, said that the fact that the damage from the outage was limited mostly to BATS's own stock shows the resiliency of electronic markets. "This was an aberrant incident. Apple had one trade that was mispriced. It was canceled and the stock started back up fine."

Tabb said BATS needs to be doing "a lot more testing" to ensure that it doesn't suffer a repeat incident. "Typically they would create a new version of their software and regression test it using previous days' histories. But this was their first IPO so there was no precedent. They were probably working with dummy files for testing."

A spokesperson for BATS did not return a call seeking more details about the incident.

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Andrew Hornback
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Andrew Hornback,
User Rank: Apprentice
4/2/2012 | 4:06:20 AM
re: BATS Blames Software Bug For Trading Outage
Is it just me or does it seem somewhat unethical for a company providing stock trading infrastructure to be handling trades of its own stock on the first day of its own IPO?

It's also interesting that they point out the 99.9% uptime on another one of the company's exchanges. Coming from a background in the media/advertising world where 99.9% is unacceptable; I have to wonder about an organization that depends on lightning fast response times and facility availability that holds up a record greater than 8 hours (or roughly 1 business day) of downtime per year as an example of their capabilities.

I would also have to question their software testing methodologies if this product passed through their testing lab without encountering issues only to blow up like a grenade when first put into a production environment.

Andrew Hornback
InformationWeek Contributor
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