The NASDAQ Crash of August 21, 2013 Demonstrates an Absence of Oversight, Across the Board

On Sunday, August 24, 2013, the Wall Street Journal published yet another article in the ongoing publishing frenzy of articles on the abrupt halt on Thursday, August 21, 2013 of all stock market trading for NASDAQ securities. This halt lasted over three hours during the trading day and disrupted an undetermined number of trades.

This article, written by Scott Patterson, Andrew Ackerman and Jenny Strasburg, titled Nasdaq Shutdown Bares Stock Exchange Flaws, contends the crash of this stock market ” . . . exposed a weakness in the plumbing of the market that critics say reflects years of neglect by U.S. exchanges and regulators.” While we can see the writers’ collective point, we respectfully disagree with the point of emphasis. Until the public focuses on the real point of concern, which amounts to a complete lack of oversight, at each important touchpoint, we see little hope of a happy ending to this type of problem.

The real problem is either a toothless operational risk management program, or a non existent one at the NASDAQ market, the data fee supplier, and at the U.S. SEC and other regulatory bodies who are charged to safeguard the public from damages from this type of problem. Everything else is simply fluff.

With a well thought out IT Audit and Risk Assessment set of procedures in place, together with leadership with the power to get things done (the critical importance of this latter point cannot be overemphasized. IT audit and risk assessment could have revealed the key points made by each of the pundits expressing an opinion on this problem, but with powerless leadership all of these efforts would have been worthless), this event would likely not have occurred.

What we find shocking is the pervasive lack of interest in exploring how better oversight would have helped us all avoid this disaster. Everyone has a solution to the technical problem, but, apparently, few pundits have the foresight to look to the oversight function as truly where remediation must take place if we are to steer clear of anomalies like this one in the future.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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