NYSE CEO says traffic spikes could snag exchanges

NEW YORK (Reuters) - The Big Board has enhanced its message handling capacity after experiencing delays during a market rout in February, but NYSE Euronext's (NYX.PA: Quote, Profile, Research, Stock Buzz) chief executive could not rule out the NYSE, or another exchange, again being overwhelmed by massive message traffic.

"We can handle order traffic at substantially higher levels than we saw on that particular day," said John Thain, speaking at the Reuters Exchanges and Trading Summit in New York. "But if message traffic tomorrow was ten times the amount that it was on February 27 we are going to have an issue."

On that date the NYSE experienced major trading delays toward the end of a massive stock sell-off, which resulted in heavy volume on the NYSE when about 2.41 billion shares changed hands -- well above last year's estimated daily average of 1.84 billion.

"The biggest capacity issue is not actually trades," said Thain. "It's really the message traffic."

The NYSE receives many times more messages to buy, cancel or replace orders compared to its actual transaction rate, Thain said.

"We don't get paid for messages, we get paid for trades," he added. "So nobody has infinite message traffic capacity."

Thain said the Big Board constantly models and monitors message traffic to ensure capacity but cautioned the amount was finite on all exchanges.

"If you had huge spikes in message traffic our systems would have trouble," he said. "That is true for everybody."

Order message traffic is sensitive to news and the marketplace, said Thain. On February 27 a problem in calculating the Dow Jones Industrials index .DJI may have exacerbated the situation with a "big and unusual spike" in traffic, he added.

Toward the end of trading on that day, the Dow Jones industrial average fell more than 500 points as it abruptly added about 200 points to its slide in late afternoon trade.