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What average investors should know about the New York Stock Exchange closure

The New York Stock Exchange temporarily halted trading on Wednesday. (Spencer Platt/Getty Images)

The New York Stock Exchange temporarily halted trading on Wednesday. (Spencer Platt/Getty Images)

By Jacob Bogage and Thad Moore

The New York Stock Exchange shuttered trading for more than three hours Wednesday after a technical hiccup left traders and investors in limbo.

Here is a guide to what happened today and what it means for investors:

What is the New York Stock Exchange?

The New York Stock Exchange, also known as the “Big Board,” is the largest stock exchange in the world. Investors buy and sell stocks on the exchange, which is owned by Intercontinental Exchange.

Companies listed on the NYSE were worth $19.69 trillion at the end of May, and hundreds of billions of dollars of stock change hands there every day.

Why did the NYSE stop trading?

The exchange halted trading at 11:32 a.m. because of a computer malfunction, NYSE officials said.  The NYSE fixed the problem and trading resumed at 3:10 p.m.

Earlier in the day observers worried that the halt in trading was related to a grounding of United Airlines flights and an outage of the Wall Street Journal’s Web site. But none of those issues are related, government and company officials said.

And government officials also shot down worries that the halt was related to a cyber attack. “We do not see any connection to a cyber breach or a cyber attack,” FBI Director James Comey told the Senate Judiciary Committee.

So what exactly went wrong?

We’re not 100 percent sure. NYSE officials called the problem an “internal technical issue” early in the day. There are some reports that the exchange was planning to update some of its software Wednesday morning. It may be that those updates went awry.

Has this ever happened before?

Yes, unfortunately.

The Nasdaq shut down for three hours in 2013 after of a technical glitch. And the NYSE unexpectedly closed early in 2005 because of a “systems communications problem,” according to its Web site.

But that outage lasted four minutes. Wednesday’s lasted almost four hours.

Other global markets have had issues. As Max Ehrenfruend points out over at Wonkblog, technical problems caused the London Stock Exchange to shutter for a few hours in 2008 and New Zealand’s NZX exchange to close for three hours last year.

(Here is a list of every time the NYSE closed for computer problems.)

I’m an investor. Should I be worried?

No, you shouldn’t, market researchers said. In fact, for most retail investors, trading went on uninterrupted throughout the day.

“NYSE is just one of several dozen exchanges and venues for stock trading,” said Jacqueline Hurley, a portfolio manager at QS Investors. The NYSE only handles between 15 and 20 percent of stocks traded daily. Other exchanges, including the NASDAQ and BATS, could still trade NYSE-listed stock.

When the exchange went offline, brokerage firms just pushed their trades to other exchanges. That means that even if you urgently needed to get money out of the market, you could.

Some of the smaller exchanges have a downside for large investors, says Jeff Carbone, senior partner at Cornerstone Financial Partners. They process fewer trades and their prices can be more volatile, he said.

The difference — pennies a share or even less — matters if you’re a big-time trader selling big blocks of shares, but not so much to average investors.

“I think from an outsiders’ point of view, it looks a lot worse that it really is,” said J.J. Kinahan, the chief strategist at TD Ameritrade.

But two decades ago, Kinahan said, it would have been a different story. A problem at one exchange would have shut down trading everywhere, he said.

What happens to all the trades that were being made when NYSE trading was halted? 

Floor traders had to manually cancel 700,000 trades after the exchange temporarily closed. Kinahan of TD Ameritrade said most of those trades were probably made by large institutional investors rather than an average person buying or selling one or two shares of stock.

Are you sure I shouldn’t be worried? It’s already been a crazy financial week. 

Yes, it most certainly has. The Chinese stock exchange is plummeting. Greece is in a debt crisis. Puerto Rico is dealing with its own financial woes.

But with all those problems, investors shouldn’t be worried about a computer glitch on the NYSE, market analysts say.

“Those are the things investors should be worried about, not this,” Kinahan said. “This shouldn’t even be in the team photo.”

http://www.washingtonpost.com/news/get-there/wp/2015/07/08/what-average-investors-should-know-about-the-new-york-stock-exchange-closure/

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