Nasdaq Reviews Nordic Shutdown as Regulators Question Backups

Kati Pohjanpalo and Hanna Hoikkala (Bloomberg) -- Nasdaq Inc. is reviewing its systems to avoid a repeat of an hours-long shutdown in trading across the Nordic and Baltic markets, which prompted regulators to question its preparedness and forced Sweden to postpone a bond auction.

Trading went down Wednesday morning across the region and didn’t start up until shortly after 2 p.m. after an “errant fire extinguisher system” caused “connectivity issues” at a third-party data center in Vasby, a Stockholm suburb, according to Nasdaq.

The company then had to “verify that all systems were operational on the secondary site before opening the markets,” a company spokesman said in an email. “We will be closely investigating the issue with the data center to determine the root cause and find a permanent resolution.”

Elisabeth Lennhede, spokeswoman for Digiplex, which operates the center, declined to comment.

The long delay in getting trading back up sparked concerns at financial regulators. Finland’s Financial Supervisory Authority will investigate why it took so long for Nasdaq to start up its backup system, according to Maria Rekola, market supervisor at the regulator in Helsinki.

“The stock exchange is at all times obligated to ensure its systems operate and that there is a working backup system,” she said by phone. “In our investigation we’ll be looking into whether preparations were as good as possible.”

Traders finding themselves unable to buy or sell said it was lucky that markets weren’t more volatile across Europe. Key indexes were little change to up about 1.3 percent late Wednesday. Sweden’s OMX was up 0.3 percent.

“Thank God, it’s a quiet trading day in Europe,” said Ole Kjaer Jensen, head of equity trading at Sydbank A/S in Aabenraa, Denmark. “It would have been critical if volumes had been big and the impact would have been dramatically bigger for us had the market been in a steep decline.”

The halt affected equity and fixed-income trading on exchanges in Copenhagen, Helsinki, Reykjavik, Riga, Stockholm, Tallinn and Vilnius, as well as trading in Nordic index, equity and fixed-income derivatives, and commodities. Any trades that took place early in the day will be canceled, according to Nasdaq. Oslo’s OBX, which isn’t part of Nasdaq, was open throughout Wednesday.

Sweden’s National Debt Office was also forced to postpone a bond auction to Thursday.

Mandatum Life, a unit of Sampo Oyj, which manages a portfolio of about 6.3 billion euros ($7.8 billion), including equities and fixed income assets, said the shutdown would cause no issues with its portfolios on a calm day, adding that the timing could have been worse.

“It’s a nerve-wracking thought that there could be problems on the busy earnings days next week,” said Mika Heikkinen, equity portfolio manager at Mandatum in Helsinki. “Without knowing exactly what has happened and how bad the damage is, it still seems to take quite long to start up the systems.”

After the issues have been resolved, Nasdaq needs to be transparent about what happened to regain investors’ trust, Heikkinen said. Arne Bergvik, chief analyst at Swedish utility Jamtkraft AB, said a repeat of today’s outage, which also halted power trading, would be “serious” and called on the exchange to take action to ensure it doesn’t happen again.

Finland’s FSA said penalties may be considered if Nasdaq wasn’t adequately prepared for the events. But “if there was something that just couldn’t be anticipated, then we need to consider whether a penalty is appropriate or not,” Rekola said. “There can be Force Majeure issues.”

Rikard Josefson, chief executive officer of Swedish stockbroker Avanza Bank Holding AB, called the outage “remarkable.”