Why the New York Stock Exchange outage was actually a good thing for the markets

Trader thumbs upREUTERS/Brendan McDermidEverything was pretty fine.

The New York Stock Exchange went down for 3.5 hours on Wednesday, but everything pretty much turned out fine.

So fine, in fact, that it might even be a good thing for investor confidence.

James Angel, an associate professor of finance at Georgetown’s McDonough School of Business, thinks so.

“[Wednesday’s] outage demonstrates the resiliency of our National Market System. When one exchange goes down, the other exchanges can continue trading and act as a backup,” he told Business Insider.

“Even though the NYSE floor is down, the NYSE Arca exchange is still operating. A retail investor who wants to trade Exxon will see no impact from the outage.”

The 11:32 a.m. outage is believed to have been caused by a computer glitch. Bloomberg is reporting it resulted from a software update.

Importantly, though, the NYSE is just one of 11 stock exchanges in the United States, and most of the stocks that trade on the NYSE are also traded on many of the others.

Those were all fine on Wednesday.

Bloomberg View’s Matt Levine summed it up pretty neatly:

This is not a story of people finding that they were unable to trade on the NYSE, freaking out and eventually switching to their backup systems. This is a story of computers constantly trading stocks on 11 different exchanges and then at 11:32 those computers switching to trading stocks on 10 different exchanges, barely noticing that one exchange went dark.

It’s actually a bit more nuanced than that. Levine pointed out that, normally, the other exchanges wouldn’t be able to make a trade without checking the stock price with the NYSE’s price, but they can work around that in the event of a NYSE shutdown.

But the point is, the exchange was back up and running by market close and official closing prices were recorded.

Georgetown’s Angel stressed that these things are bound to happen. (Here’s a list of other memorable Wall Street tech glitches.)

“What surprises me is how rarely these events occur,” Angel said.

What’s important, he said, is that we have protections in place to make sure investors aren’t hurt by the glitches.

That was the case on Wednesday.

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