Tags: Geffner | Nasdaq | outage | backups

Attorney Geffner: Nasdaq Outage Indicates Need for More Backups

By    |   Tuesday, 27 Aug 2013 01:24 PM

The Nasdaq stock exchange's three-hour shutdown Thursday points to a need for more backup systems, says Ron Geffner, a former Securities and Exchange Commission (SEC) enforcement attorney who now heads the financial services group at Sadis & Goldberg.

"I would hope that our government looks into creating further redundancies," he told Newsmax TV in an exclusive interview.

"In the computer system here at our firm, in the event our server goes down, there's a backup server that's located in another part of the state. And then there's a backup to that located in another part of the United States. So there are redundancies set up."

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The question for Nasdaq, then, is what backups has it established, Geffner says. "Apparently, there are not enough redundancies to have an outage that took place this long."

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The SEC has a role to play, he says. The SEC's new Chairwoman Mary Jo White has promised to finish a rule proposal begun in March that would require exchanges to test the reliability of their technology, Geffner says.

"If people deviate from those rules or the processes, that would lead potentially to prosecution. But it's not clear whether she can do anything more than that."

And Geffner doesn't think the market can be slowed down, given the demands of traders and investors worldwide.

It's unclear yet whether Nasdaq communicated properly with the public, he says. "Acting as a Monday morning quarterback, one can always say, sure there are ways it could have been improved in the sense that the exchange should have communicated at the same time to everybody, not just to certain people, their inability to open the markets."

And what about Nasdaq's legal liabilities?

"Under section six of the Securities Exchange Act of 1934, the exchanges enjoy immunity," Geffner said. Under Nasdaq rules, the exchange's legal liability in a calendar month can't exceed $3 million or the amount of any recovery that Nasdaq obtains through insurance, he says.

The $3 million figure may be small, "but if you look at our exchanges and the roles they play, to have them exposed to any greater liability would put them at risk of ruin and would actually be worse," Geffner said.

That raises the question of accountability, he says. "If there are errors being made in Nasdaq, it is being run by people who are at some form of risk, either to their reputations or within their careers if they act in a reckless or criminal manner," Geffner said.

"There is accountability. It's just not going to be the same accountability, or at least it's not currently the same accountability, as any public corporation might have."

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The Nasdaq stock exchange's three-hour shutdown Thursday points to a need for more backup systems, says Ron Geffner, a former Securities and Exchange Commission (SEC) enforcement attorney who now heads the financial services group at Sadis & Goldberg.
Geffner,Nasdaq,outage,backups
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2013-24-27
Tuesday, 27 Aug 2013 01:24 PM
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