Nasdaq was once the upstart of the financial world, set to take over the American stock market. Now, the company is looking more like a vulnerable also-ran.
The reputation of the market operator has been dented by a number of recent mishaps, the biggest and most prominent coming on Thursday, when a technical problem shut down all trading in Nasdaq stocks for three hours. That was just a few weeks after prosecutors announced that hackers had managed to break into and remain in Nasdaq’s computer systems for two years.
Even before its technical problems, Nasdaq has been losing its commanding position in stock trading as younger rivals steal its business. Two of those rivals â€" BATS Global Markets and Direct Edge â€" are in talks to merge, according to a person briefed on the matter. That combination would make it bigger than Nasdaq and close to the New York Stock Exchange in terms of trading volume. The deal talks are showcasing the rise of two markets built to favor computerized high-speed trading.
The N.Y.S.E., the longtime archival of Nasdaq, has dealt with these competitive pressures by selling itself to another young, fast-growing exchange in a deal that recently received approval from regulators. But Nasdaq has failed in its two notable efforts to buy other exchanges. And the acquisitions it has recently made have often been far from the stock trading business. All of which has left a big question mark hanging over its future.
“They’ve got a real problem,†said David B. Weiss, an exchange analyst at Aite Group. “They need to do something to get the pull they used to have.â€
A number of industry participants have complained that Nasdaq’s response to the trading halt on Thursday showed many of the same flaws that have caused the company problems in other circumstances; most of all, poor communication with other members of the industry.
“This draws into question a lot of the issues surrounding Nasdaq, and the general leadership of the exchange,†said Christopher Nagy, the founder of Kor Trading.
The leader of the Nasdaq is Robert Greifeld, who has been chief executive since 2003. He is known for his intensity and somewhat quixotic interests, including marathon running and the turtle pond in his New Jersey back yard.
It was Mr. Greifeld who was seen as the driving force behind Nasdaq’s failed efforts to buy the London Stock Exchange in 2007 and the N.Y.S.E. in 2011.
He has had a tempestuous relationship with both his regulators and customers. In the middle of the bidding for the London exchange, the founder of the large trading firm Tradebot, Dave Cummings, wrote a letter to other industry participants in which he called Mr. Greifeld a “bully.â€
“A number of people have recounted sales meetings in which Bob led with the slogan ‘our customers are our hostages,’ †Mr. Cummings’ letter said.
Nasdaq has said his letter was not worthy of a response.
For the broader market, the biggest lingering sore spot before this week was Nasdaq’s handling of the Facebook initial public offering in May 2012. Mr. Greifeld stood next to Facebook’s founder, Mark Zuckerberg, to ring the opening bell, but when Nasdaq’s technology went haywire as Facebook’s stock began trading, Mr. Greifeld got on a plane back to New York and was out of touch for hours while the market was in chaos.
The Facebook debacle lost Nasdaq some credibility with the company’s main regulator, the Securities and Exchange Commission, where some officials have been frustrated with Nasdaq’s lack of communication â€" and at times, lack of contrition. The agency’s enforcement unit ultimately fined the exchange $10 million for its role in the botched I.P.O. As the S.E.C. investigated the I.P.O., people briefed on the matter said, Nasdaq played down the problem and questioned whether regulators were overreacting.
Mr. Nagy said he was “appalled†to see many of the same issues of communication coming up after this week’s incident.
On Thursday, the exchange did not immediately notify the S.E.C. when the problem surfaced, the people briefed on the matter said. As a courtesy, other exchanges typically alert the agency to serious threats. Nasdaq did open a phone call with their employees and with employees from other exchanges soon after the problem was detected.
Ben Protess and Michael J. de la Merced contributed reporting.
