Matt Krantz and John Waggoner

NEW YORK -- The breakdown that halted trading on Nasdaq stocks Thursday for roughly three hours is yet the latest blow to the exchange widely known as being the "high-tech market."

The outage -- caused by what Nasdaq called a "connectivity issue" -- frustrated traders and investors who couldn't buy or sell stocks due to the freeze. It's the latest in a string of problems with the Nasdaq and other U.S. markets just as investors are being urged to come back into stocks.

The question is whether this latest issue may cause problems with Nasdaq as it courts traders to use the system and young companies to list their shares at the exchange. Problems have periodically plagued the Nasdaq. Most recently, there were trading problems with the initial public offering of Facebook in May 2012. Nasdaq was widely panned for its handling of the IPO, which opened with delays and caused errors with trading and quote systems.

In 1994, the Nasdaq suffered a particularly memorable problem when the exchange closed for roughly 30 minutes following a power outage cause by a squirrel. Worse, in 1987, another squirrel gnawed through a cable in Trumbull, Conn., causing a blackout. The squirrel lost its life, and Nasdaq lost power for 82 minutes. And in 1986, a computer outage -- non-squirrel-related -- shut down the system for four hours.

It hurts "Nasdaq's image, especially after last year's Facebook IPO stumble," says Gaston Ceron, analyst at Morningstar. "It is something that traders and company executives will ask questions about."

Nasdaq OMX, the company that operates the Nasdaq exchange, had become synonymous with bringing high-tech to the markets. Its reputation as a technologically advanced exchange helped it lure top firms to trade there, including Microsoft, Intel and most recently, Facebook.

It's premature to say that Nasdaq's business will take a hit from this, Ceron says. Nasdaq isn't the only exchange that has had problems. The Flash Crash of 2010, when the Dow Jones industrial average lost more than 1,000 points, dragged down all U.S. markets in about 15 minutes before recovering.
This event is nowhere near as severe, says Ian Winer, head of equity trading at Wedbush Securities. He says that given the massive amount of volume the Nasdaq handles, periodic problems are a reality. "Machines break down," he says.

Still, it's a blow to the Nasdaq.

"It's the ultimate embarrassment, because it's supposed to be the technology exchange," says Chicago Securities Attorney Andrew Stoltmann. "When the Nasdaq paid a $10 million fine over the Facebook IPO, it claimed new systems were in place to prevent those glitches."

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