FACTBOX-Security processor at center of Nasdaq trading halt
Aug 23 (Reuters) - The three-hour halt in trading of Nasdaq-listed shares on Thursday originated in a little-known data system called a securities information processor - the heart of price discovery and trade execution for the U.S. stock market.
Nasdaq said there was a "connectivity issue" that led to a breakdown in the processor's ability to disseminate data, but provided no other details.
Here are a few facts about the processor, known within the securities industry as the SIP, which consolidates and disseminates the latest sale prices and stock quotations.
- There are two SIPs, one administered by Nasdaq OMX Group Inc. for securities listed on the Nasdaq Stock Market, and another run by NYSE Euronext for securities listed on its exchanges: the New York Stock Exchange, NYSE Arca and NYSE MKT.
- The Securities and Exchange Commission, through Rule 603 of Reg NMS, requires all quotation and trade information for individual stocks be disseminated through a single processor.
- Last sale prices and stock quotations from all the exchanges are consolidated by the SIP into a data feed - known as the consolidated tape - that brokers and asset managers must acquire to ensure their clients achieve "best execution."
- There are three data feeds - tapes A, B and C - based on where securities are listed. Price, order size and quotes on Nasdaq-listed securities are carried by Tape C. The two other carry New York Stock Exchange-listed securities and data about securities listed on NYSE Arca and NYSE MKT.
- The two SIPs are governed by one plan for Nasdaq stocks and another for securities listed on the NYSE exchanges. One of their main functions is to divide among all the exchanges the revenues generated by the consolidated tapes.
- The plans are overseen by committees appointed by the exchanges, with non-voting representatives from the SEC, brokers and vendors. Minutes of meetings of the two committees are not public and tape revenues are not reported, though as public companies, Nasdaq and NYSE release their share of the revenue in their earnings reports.
(Reporting by Herbert Lash; Editing by Dan Grebler)