System Failure Delays Options Exchange

The Chicago Board Options Exchange opened after a delay of several hours on Thursday because of a system failure.

By early afternoon, the options exchange, the nation’s largest, said all of its systems were operating normally. But brokers who normally trade tens of thousands of options each day through the exchange sat on the sidelines for much of the morning, waiting for updates.

The exchange trades option based on the Standard & Poor’s 500-stock index and the VIX index, a popular barometer of investor sentiment about volatility in United States equities markets. The contracts are important tools among investors seeking ways to hedge their stock holdings.

The system failure was was the second example this week of technology intruding into trading in the United States. Earlier this week, a false tweet from The Associated Press that reported explosions at the White House caused the S.&P. 500 to plunge nearly 150 points in two minutes. The markets rebounded quickly after the A.P. said its Twitter account had been hacked.

A press release from the exchange said the delay was not the result of hacking but did not provide any more information about the system problem. Gail Osten, a spokeswoman for the exchange, declined to provide further information in an e-mail.

Edward Provost, the chief business development officer for the exchange, later said that a “software glitch” caused the failure, according to Bloomberg News. Mr. Provost made his remarks from an industry conference that he and other exchange executives were attending in Las Vegas.

Analysts said while investors could find alternatives to S.&P. 500 options, few good alternatives were available for the VIX index.

The first notice that something was awry at the exchange came soon after 8 a.m. Eastern time, when the exchange’s system said that some users were experiencing “issues” downloading certain products. The exchange delayed its opening, expecting to start trading about 10:15 a.m. Eastern time, according to notices sent to traders.

That opening never happened. And for several hours the exchange could not provide an expected opening time. Finally, more than three-and-a-half hours past its usual opening, the exchange said all trading would begin at 1 p.m. Eastern time. About a half-hour later, the exchange reported all systems were operating normally.
Observers said while the failure most likely idled investors trading the volatility index this morning, they said it was fortunate that the equity markets were relatively quiet and stable.

“We would be having a very different conversation if the S.&.P 500 was down 50 points or more,” said Mark Sebastian, the chief operating officer of Option Pit, an educational and consulting firm. “It is kind of a slow day, so this wasn’t a big deal.”

Equity markets climbed higher during the morning, buoyed by robust corporate earnings. The S.&.P. 500 was up 13.09 points, at 1,591.94, in early afternoon trading.