Transcripts For CNBC Squawk Box 20130823

Never the crime, it is the coverup. Right. Thats what they say. Can anyone here play this game . Does anyone know how to do this despite the trading halt, stocks shook i was surprised they were able to shake that off. Nobody likes strange, weird things and they close with modest gains yesterday. The dow, in fact, could have traded lower, had done it six straight days, but it didnt. And Broader Market activity, treasury yields continued to climb. And in addition to absolutely beating the nasdaq story to death today, we are going to continue to figure out what the fed is going to do. We have lockhart and bullard on and Steve Liesman. The story we have been beating to death for weeks now. We want the exchanges to work. The facebook and everything else, it is interesting, we love doing it, but the big picture doesnt usually change. At some point, the Technology Gets better, it gets more the nasdaq has more competition these days. Theyre the first one. They should be the ones that have it down. You would think. And no one is going back to specialists. Well have all the politicians calling for more regulation. You know thats going to happen, even though the s. E. C. Is already, some people think fairly heavily handed and well talk about that in the executive exchange in a second. Other headline today, moodys placed the ratings of six of the largest banks in the u. S. On review. The agency is weighing the possibility of lesser Government Support for those institutions. Were talking about goldman sachs, jpmorgan, morgan stanley, wells fargo all under review with a possible implication for downgrade. Bank of america and citigroup are being evaluated in their words with the direction uncertain already sort of see what is interesting there, right . The stronger the banks, the stronger banks are being downgraded because s p says, oh, it all falls apart, they wont get it. Glad you did find something interesting. Thats good. You found the interesting thing about it. Thank you. A few after the bell movers to talk about. Gap reporting Second Quarter results that were in line with wall street estimates. Retailer also raised its full year earnings guidance, based on strength in its cargo pants division and hiked its dividend. In a different story at aeropostale, the teen retailer posting a bigger than expected loss and warning announced it will speed up store closings. Watch the shares if you would or im asking you nicely, im not telling you, to watch the shares. If you want to, fine. If you dont, dont. Pandora media, the stock tumbled in late trading after the online Radio Company issued disappointing guidance. One of these days ill look into what that does. E years to do sirius xm. I do end have sirius xm but i have spotify, the competitor to pandora. Does that gauge what you like and play it . Our universes will never meet. The tween shall never meet. You like classical music. Not so much. I have jazz, maybe. Old only men like jazz. Alternative, i dont like any of the pop new stuff unless it makes the crossover. And country, you said one of the country songs we got bigger fish to lets check on the futures. The futures are suggesting negative open, the dow opened lower by 17 points. The s p lower by more than one. The nasdaq would be flat. Lets share what is going on with the price of oil as well. Energy is higher across the board, but not by much. Wti at 125 per barrel. The tenyear yield, 2. 886. That is lower than the 2. 9 we saw yesterday intercession. As for the dollar, we watch what happen overseas, all the countries current account deficits doing massive intercession. The yen at 99. 88. Euro, 1. 33. The pound, 1. 56. The price of gold, 13. 75. Looks like almost a twomonth high there. Andrew . Thank you, michelle, for that. Back at the nasdaq this morning, there are more questions than answers about what happened yesterday. Bertha coombs has all the details. I dont think shes left here in the past 24 hours. I can happily say ill send it upstairs. I can see you. Take it way, bertha. Youre seeing the best side. The nasdaq issued a statement that the problem happened with a connectivity issue with an exchange partner. What we were talk about yesterday was the security information provider. This is essentially a utility that is owned by all of the exchanges that provides the feed that tells you what the pricing is. Yesterday it appears everything was fine as the opening bell started here. The problem here at the nasdaq was there was a monsoon outside, dark clouds. But about 45 minutes in, the nasdaq doesnt say who the Exchange Participant is, but we do know about 45 minutes into trading yesterday, nyse arca starts reporting issues with its feed, initially saying it was having issues with messages on routed orders. Ten minutes later, those issues were resolved. Then a little while later an 10 50, they say nyse arca was unavailable for tickers tact through zyy. C. This would be the continuing problem on the nyse arca throughout the morning. The ten minutes later, they said the issue was resolved. Some of those trades were busted. Then, about ten minutes after that, they said they had difficulty processing outbound quotes on that same range of nasdaq tickers. And then they said, again, about ten minutes later, that the issue was resolved. But now, about an hour later, thats when the nasdaq starts reporting issues again with this sip feed. Initially, just with options trading, but by 12 25, they not only had stopped the options, but had stopped everything trading on the nasdaq itself. Thats when we start seeing that nasdaq composite chart flat lining there for three hours. By 1 00, they said that they had a protocol to open. They were going to first test a few stocks, and then a few minutes later they would open the whole market. They said last night, in their press release, that they had identified the problem within 30 minutes. But that it still took another two hours for that market to open at 3 25 completely. It appears they were trying to resolve these issues with all of the Exchange Participants, and as we went into the close, the market seemed to really have taken this in stride as joe pointed out, you had all of the indices moving higher, you had stocks moving in the same direction they had been before they had been stopped, but then the nyse arca had a problem again in the afternoon, some of their trades were busted, they continued to have a feed issue. This morning, when we look on the nasdaq trader side, it says all systems are go, they are not reporting any problems this morning. Again, the nasdaq did not identify nyse arca, but the question, andrew, guys, has to be where did this feed problem originate . Must have been with the feed itself, with the feed itself or did it come back from what was happening with the connectivy between the participants and the feed. Thats the question and the answer we still dont know. Thank you for that, bertha. Before we send it over to washington for a second, i have a question for you, which is nasdaq is taking it on the chin clearly. Ultimately is the New York Stock Exchange arca going to take it on the chin in the same way . Well, you know, it is interesting. We dont know, right . We dont know whether the problem originated with the feed, and that was what was corrupting the trading and the feed information for nyse arca in the first place. The question is, was this a Software Glitch and where did it originate and how is it it is talking to folks who are engineering in far more well versed when it comes to computing, they still dont understand how if there was a problem with the arca feed, how that then brought down the whole system, why you need to bring the whole system down in order to fix it. That is a question. Why wasnt there some sort of redundant way to do a work around and not have to bring the entire system down. Bertha koomz, youcoombs, a job and well be coming back to you multiple times this morning. Now to washington and well talk to Allison Pruett to help us make sense of all of this. Lets talk about the legal issues that relate to this. You had Mary Jo White out last night, suggesting that they need to do much more. Arthur levitt taking shots at the nasdaq. Is it fair that we suggest that the nasdaq has had too many problems . At the same time, i think to myself, this week, google went down for five minutes. Can we ever have a robust system, or system so robust that we never run into a problem . I dont think we can ever have guarantee there wont be problems, but you can have better policies and procedures in place, more testing, more capacity testing, and a better information flow to Market Participants so that people arent at sea for several hours. Here is the question. I talked to a number of people now behind the scenes involved in this problem yesterday. And the question you always ask them is why didnt you say more, why didnt you come forward the second you understood what the problem was or had a sense there was a problem and said there was a problem and why did it take so long to get back online . And the answer you always get back is that if we had provided an answer and our answer was wrong and all this is happening in real time, then we would have really been in trouble. On the other hand, though, you have people need to be able to plan and make assessments as to what theyre going to do. If they cant trade on nasdaq, what steps do they need to do to protect themselves. What are the liability issues here . We dont know whether there were significant losses. I understand that new york did break some trades. Who is going to be responsible for losses on those . Unfortunately, the exchanges tend to have rules that limit their liability. Recently nasdaq, i believe, volunta voluntarily gave more restitution to some of the people hurt in the facebook ipo, but it is also just recently made a motion to dismiss in action in new york on the basis of immunity. What is your expectations in terms of were going to have a lot of conversations about regulation, what kind of regulation can we expect . What do you imagine is going to have happen or play out over the next couple of weeks on this issue . Well, back in march the s. E. C. Actually proposed regulation sci, systems compliance and integrity or capacity and integrity. Sorry. And it would require all sros and other Market Participants to adopt policies and procedures for robust testing, for capacity integrity, you know, essentially to make sure their systems work as their intended to work. Also would possibly require industry wide testing. But, you know, there are that has already been in the works and i would not be surprised if the s. E. C. Pushes that forward more quickly. Okay. We will watch to see whether that happens. Laura, thank you for joining us this morning. Ill send it over to michelle, back at hq. Lets talk about Global Market news. Brazils central bank announcing a currency Intervention Program going to provide 60 billion worth of cash and insurance to the Foreign Exchange market by year end. The goal is to bolster the countrys currency, which has been in free fall, slipped to near fiveyear lows against the dollar. This is part of the continuing story that we have been telling you with the emerging markets, comes to places like indonesia, india, brazil, et cetera, places with current account deficits, seeing capital in the country and desperately trying to stop the outflow of capital and also defend their currencies because it is leading to worse inflation. You see the brazilian real. Time for the Global Markets report. Carolin roth is standing by in london. What a week it has been for Global Markets with that emerging market selloff you talked about. And european markets were hit pretty badly as well. But now the final trading day of the week, were looking at some stabilization, the stoxx europe 600 is essentially flat. Keep in mind, if we do end lower today, this would be the first weekly loss for european markets, though, since june. Want to show you the markets one by one. Outperformance in the european markets. Ftse up by. 2 . This is in part on the back of the upward revision to the Second Quarter gdp number. Now at 1. 5 growth for the Second Quarter year on year. Meanwhile, the xetra dax is flat and we are seeing some losses to the tune of. 4 for the cac 40. In the currency space, we are seeing sterling against the u. S. Dollar, seeing some nice gains of around. 2 . We did see that jump on the back of the upward revision to the gdp number. Euro dollar flat and dollar yen seeing further gains, thats been the big story this week. The dollar rebounding against the yen. Of course, partly because the safe haven appeal in the yen is now easing. But finally, the dollar is striking the yields higher. Back over to you and have a fantastic weekend. Great. We will. And you too, carolin. Thanks very much. Looking through the other stories of the day. There are other storys . Usa today has got a little they looked at al jazeera and decided whether they liked it or not. Usa today says the best thing about it, it is refreshingly fluff free. Unlike usa today, which, i mean, really, do what i say they like flufffree news at whoo it is like chinese food. Colors and graphics. You read this, youre hungry in 15 minutes for something after you finish usa today. Usa today likes al jazeera because there is no fluff, no tabloids, no colors al jazeera, just debuted earlier this week and they have been selling themselves as very serio serious. Like all networks when they start. Were going to be better and highfalutin. Well see how they like not paying any bills. Carl icahn is at it again. His latest tweet about tim cook. And plus i have a lot to say about this, the new batman review. I know. What do you think . I care less about the personalities of who is going to play him than the idea of superman and batman together. Thats what im trying to think logistically how that one difficult. One is a true superhero with superpowers. That can fly. First, as we go to break, lets check on the weekend Weather Forecast with jen carfagno. It is going to be super. You can see where the storms were, you can do anything if you can think about think about the weather world. Batman or superman could give us a good call on the forecast this weekend. High pressure building in, the timing is perfect for the weekend. Well have great air, cooler, dryer, less humid air coming in. Looks good. Couple more showers left today, especially across pennsylvania, western p. A. , parts of West Virginia and virginia. But look at these readings tomorrow, were running in the 70s from boston, back toward syracuse, new york city, barely 80. D. C. , 85 degrees. And no rain on the map. Beautiful sunny day saturday and sunday, all throughout the northeast. Plus, this front were tracking will make some progress finally into the southeast, cities that have been so water logged will get to dry out like atlanta and charlotte and points in between. Sunshine next week. We havent seen that in a while. For an extended period of time, it is coming back. The middle of the country, the heat is the story getting into the weekend. Temperatures going above average again. And for a couple of days, were back to the 90s in north and south dakota. Thats on the move. So minneapolis, chicago, get ready. Sunday, were 94, minneapolis. Chicago, practically 90. Well get there next week. Forecast for the weekend is dry. Couple of showers may move into minnesota for you on saturday. On sunday, it is up here around the northern lakes and the west, still hot, watching for changes with the rain coming to the southwest over the weekend. Thats a look at your weather. Well be back with more on squawk box after this. Eing st. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. Welcome back. It is time now for the executive edge. Our daily segment focus on giving Business Leaders a leg up. We often talk about the revolving door between washington and wall street. Now the s. E. C. Is making more of its staff leave the agency for the private sector. Subject now to a oneyear cooling off period. Under the new policy, anyone who makes more than 155,000 a year would be barred for one year from appearing before the agency. Guys, what do you think of this . I was wondering what you thought of it, andrew. You wrote that nice piece the other day that not all nepotism is bad, if you have a great roll dex and the way of the world, my take after reading it closely was that since you could leave the s. E. C. And go and lets say you were pretty lousy at your job at the s. E. C. , so you go and get you dont get a good job afterwards, make 154,000, which is not enough money, then you can come back and you can continue your mediocrity you had at the s. E. C. And at your new employer and it is fine to appear before them, right . Just if youre really good they dont want you coming back and saying anything, right . Is that how it works . That is one way to think about it, given the salary cutoff. You leave and cant get anyone to pay you and come there, then you can go back. My sense it is a good thing. The reason is only reason i think this is because there is such a perception out there that the whole game is so stacked and there is no level Playing Field. Im not sure this levels it. This wont change that at all. Somebody will still get hired. So they cant appear, but you think they can give advice behind the scenes about when you appear when you go do this and go do that, call this person, tell them this, ask them this. This is complete and total bs. This is them looking like theyre doing something theyre not. Why say it is a good thing . It is because remember when we got the Investment Banking side out of the analyzing side and got Pure Research firms where no one made any money and thats the kind of research you got when you hire people that werent good at what they did and they did the research and that wasnt very good and suddenly, you know, it is well, it always looks good. The Prior Research was conflicting. It was. Do we have Pure Research now or has it moved to the buy side . How smart was he . Brilliant guy, no question. Really a great analyst and say he dabbles a little in investment, in Investment Banking and then cant be we better go to the other stories. A couple of other topics to talk about. Carl icahn has spoken again with apple ceo, the activist investor sent out a tweet yesterday, cant believe hes doing this, he plans a longer discussion with tim cook over dinner next month. Icahn wants to talk about the size of the iphonemakers buyback program. What will be discussed is magnitude. I cant believe hes happy gets off the phone every ten seconds and carl is tweeting what is going on the conversation. Hes got to love technology. He lives by it. Got to love the fact that carl icahn is on twitter. Im sure he loves twitter too because he can spit something out and you dont have to respond to anybody, dont have to take questions, it is like his own news dissemination process. Doesnt get have to get on the phone with a reporter and answer any questions. I thought it was incumbent upon us to do it because we can mention apple and icahn. Then i figured we didnt have to say anything. And twitter. Well go to the story i know youve been waiting to talk about, which is this. Finally a hollywood story trending on social media this morning. Ben affleck will play batman in the upcoming superman sequel man of steel. They will face off against each other. I think, joe, for first time in a Motion Picture like this, or recently. I dont think i dont think the two should ever meet. That was my thing. I love batman is my favorite because theyre not real superpowers. Unless he learns something you would think superman would have to beat batman every time, right . I can farewell against superman. Batman will be there flying with xray vision and super strength and batman will have a grapple hook, like what i do with this . Batman has to get crypt knight. If he has crypt knight, the whole game changes. Flying, super strength and xray vision, i mean, those are thats different than a man that just is conflicted and rich and turns and smart and with a cool car and a butler. As far as the casting, whenever clooney or affleck or anyone get a job that will occupy them for another eight months or so, thats eight months they wont be talking or trying to go into politics actually. Oh. Affleck said before, you know, the senate run might be something he would oh, gosh, that would be awful. He would fit in in massachusetts. He would. Hes a smart guy. I must say, hes a smart guy. Hes come a long way since goodwill hunting. Read the stuff he says politically. You think hes a smart guy. How can he be smart based on the stuff youve seen come out of his mouth . You dont have to agree with everything he says, but i think he articulates it and the way he thinks about it. You dont agree, but there are people in hollywood who arent that bright. This guy knows what hes doing. Hes an interventionist like the rest of them. I think ill lose this one. Two against one. But im here in times square. That was like superman against batman, watching that happen right there. You know who you were. Im holding my crypt knight, trying. Why doesnt wonderwoman get involved at some point . There is no movie with wonderwoman in it. I said earlier the gap was doing better i saw. Cargo pants. Yeah. What did you say when you got home . Is she going to allow you to wear cargo pants . Hes wearing them underneath now. Here at the nasdaq, you dont get to see, im not wearing pants. More from the nasdaq this morning as everyone tries to figure out what happened to cause that more than threehour trading halt yesterday. We have answers. We hope we do, when we return. [ male announcer ] here at optionsxpress, our clients really seem to appreciate our powerful, easytouse platform. No, thank you. We know youre always looking for the best fill price. And walk limit automatically tries to find it for you. Just set your start and end price. And let it do its thing. Wow, more fan mail. Hey ray, my uncle wanted to say thanks for idea hub. O well tell him i said youre welcome. He loves how he can click on it and get specific actionable trade ideas with their probabilities throughout the day. Yea, and these ideas are across the board bullish, bearish and neutral. 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To experience the precision handling of the lexus performance vehicles, including the gs and allnew is. This is the pursuit of perfection. Good morning. Welcome back to squawk box on cnbc. Im joe kernen with Michelle Carusocabrera. Were not in the city, unless you think ingle cliffs is a city. Andrew ross sorkin is reporting live from the Nasdaq Market site in times square. That is a mouthful right there. Just times square, all the stuff that that encompasses, a lot better place now, at least temporarily. Well see what happens with all the moves against bloomberg yesterday. Andrew is preparing for an interview with the man of the morning. You got to say, this guy, when it does hit the fan, at least by the next day, he is ready to talk to everyone about it, right . Thats the good news. He will come out and hopefully be as transparent as possible. Got him at 7 30, right . 7 30. We have a lot of questions, a lot of people actually tweeting in, if you have a question, tweet to us and hopefully we can put it to him. Well talk more about it now and hang out there. And for me, all those trades and it is all, you know, with computers, you know how when you lose one of those Little Things you click on to go to safari, if it goes away, i dont know how to how do you get that back, andrew . Do you know how to do that . When the ikey icon disappear. If the printing gets big if someone does something, i dont know how to this is not a big shock to me. Youre on the phone, you call up. In some cases silence is golden, but some say the nasdaq yesterday with its silence during yesterdays trading is anything but. And it may have tarnished its reputation further and that of the ceo. And i was trying to figure out do we count the flash crash as nasdaq, they called it, and do we count facebook because they called it another black eye. Are we talking about a fly . Were at, like, three or four black eyes. You only have how many eyes do they have . This is, of course, one of several, i think, a number of people were talking about facebook and the face of what happened yesterday. One reason it is being criticized, the nasdaq, it was almost five hours before they issued an official statement and that was after the close of trading yesterday. At no point yesterday did the companys ceo bob greifeld make a public appearance or statement. The nasdaqs lack of communications and the trading glitch, of course, coming under heavy criticism from harvey pitt yesterday in an interview on the closing bell. What happened today with nasdaq is really inexcusable. Some stocks were shut down longer than others. Some stocks opened ahead of others. And no one knew what was going on. It looked like nasdaq was clueless about how to deal with this emergency. Not everyone so critical. Crisis Management Consultant eric desenhalt says Top Priorities need to be operational. Any pr component, he says, is secondary. He says it is possible the nasdaq wasnt calling people back because it was focusing on operations rather than playing media whacamole. For him, a bigger issue is branding. In the aftermath it needs to go beyond telling people trust us, it is being handled, it needs to demonstrate instead how they are handling it. As for ceo bob greifeld, one institutional trader saying he should lose his job if he could have prevented it. But for greifeld, his firms second high profile problem in just over a year and a half. In may of 2012, a new Computer System botched facebooks ipo, resulting in a 10 million fine for the nasdaq. Now this was after he signed a new contract in february 2012 getting a raise and after that facebook debacle he did maintain support of the board. Greifeld kept a low profile, reportedly at a wake in new jersey. He did return to headquarters, though, once the trading halt was announced. As you mentioned, well hear more from him at 7 30 when he sits down to talk with andrew. Back to you. Okay. So youre really saying two black eyes. Thats fine. Well, i mean, there no, there have been others. There have been okay. So, you know, that part about the people that were fixing the problem would not be the same as the flacks. God help us if the flacks are trying to fix the problem. There would have been time for the flacks to talk about what is happening and let everybody know. Not every person employed by the nasdaq wasnt in there checking ethernet wires or anything, wore they . No, the question is, if you read the statement, the nasdaq said it was a technical issue. They didnt give us any details on that. So one consultant, his opinion was, listen, they dont want to go out there and say were handling it, we dont know what the problem is yet, because that opens up more questions and so you really want to go out there with the facts before you make an appearance. Hopefully well get the facts today. It took a while to get to that point. People were looking at what was happening on their computers, and didnt, you know, is it my computer, is it mae . Right. And other people would look at other situations which happened at the other exchanges, most notably the new york stock echc exchange and you get the impression that they would be much more public and much more available during a time like this. Right. Mary, thank you. Thanks for that. Well be following it. In market news, big swings for the vix this week. G joining is tim freeman. I was thinking, duncan i call him the guy from animal house, that was needlemire. I think hes sort of snickering, but there but for the grace of god i go. When the news organizations screw something up, we dont take any satisfaction because there but for the grace of god. Is there any way to live in a world where this never, ever happens . Or is there some user error here . I think the market acted rationally. The market is bigger than the nasdaq. It is. But the world has gotten very used to technological issues. This is clearly a technological issue. But if were to look at risk across government agencies, businesses, this is something that were going to have to live with. This is not going away. Systems will fail. We will have to figure out what is going on quickly. Well have to fix them. But systems will fail. Security information will be breached. It is just the weight of the technological world. The market seems to understand that pretty well. The issue wasnt that you couldnt trade. You couldnt get pricing done, correct . Correct. Trade without pricing. I realize, i think so. Hold on, there are dark pools, other places, right . Law requires that when you execute a trade, it has to be executed at the best possible price this is required by law. You dont have the feed, you cant comply with the law, right . Is that the basic issue here . Yes. You could have traded just how wide . In some cases it was no bid at 200. This had been a case where if you were confident about the pricing, you get on a dark pool, shouldnt have been allowed to do it . I would say the average investor or the supernatural investor when he sees Something Like this happens, they stop. They move away from the computer, they make a lot of phone calls to exchanges and figure out what is going on. Dont trade. Dont risk putting in a price because you dont know what the execution will be on the other tell you to figure out what is going on. This comes out to a technological backup to make sure you get pricing done . Thats the way the market took it very, very well. The market seemed to realize very early on that this was a technological problem, there didnt seem to be anything nefarious going on. There was discussion about that in on the market. Like if this was some kind of cyberterrorism. Exactly. Is there anything that would help . I think competition over time will breed better systems. I think the nyse high touch model will make their case. But i think technological issues are going to be a part of what we do. I think the nasdaq has a great Business Model when you look at the High Frequency trading that goes through the models, profits generated, a wonderful model. How long does it take before theyre blamed . Technology is an issue we have to deal with. Vix was down. Google earlier in the week. Remember the super bowl . How long were the lights out . Stuff happens. They remember. Always someone kicking out a plug, tripping over a wire. Squirrel one time. A squirrel . Do you know . You dont know. I tried to bring the football analogy for you to bring it home. No, no. But to me, the market is clearly focusing on treasuries. If we want to look at what is going on across volatility and asset classes, we need to look at 5s, performance in the treasury market of 5s and how theyre back up, backing up significantly relative to 10s and 30s. When you think about where we in the rate world, how much are we going to back up in tens, people focus on 5s now. The equity market really were off in around 4 from the highs of the year. Some people are saying, hey, we can leak another 4 . Were talking about 1625, 1600. Okay. So shortterm, the journal points out there were people who had to hold positions that may have been risky longer than they wanted to because they couldnt if you have to hold for a half hour longer, that is not a fair and it isnt. Which is why i asked you carrying under risk because you cant get out. Sophisticated investor with access to dark pools, why shouldnt you be allowed to execute. Dark pools sounds like dark matter, so esoteric. What is wrong with your voice . Coaching started on monday. What are you yelling . Woody hayes or coach k. Still to come, the first on cnbc interview with ceo bob greifeld. First, well talk about the regulatory issues raised by yesterdays trading freeze. Are you flo . Yes. Is this the thing you gave my husband . Well, yeah, yes. The name your price tool. You tell us the price you want to pay, and we give you a range of options to choose from. Careful, though that kind of power can go to your head. That explains a lot. Yo, buddy i got this. Gimme one, gimme one, gimme one the power of the name your price tool. Only from progressive. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. And the doors even handle the checkout so we can work on that thing thats stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. So everyone goes home happy. Welcome back to squawk box. Joining us is keith miller, chairman of perkins qe securities enforcement practice and former s. E. C. Enforcement attorney. How quickly did you make that jump from the s. E. C. To it has been a while. Quite some time. What do you think of the law to wait a year . Sounds good. But, you know, there is people that work in large law firms, even after they leave the s. E. C. , theyre helping behind the scenes. Exactly. Thats my point, exactly. They dont need to be in front of the s. E. C. It is useless. It is just to try to make people feel better but doesnt do anything. It is optical, i would agree. Lets talk about the nasdaq, why we wanted you on. Your initial thoughts . Im sure the s. E. C. Has been involved since yesterday. It got market feeds, they got the different divisions involved. I think what you find is that the s. E. C. Is going to act quickly here. To do what . They have to understand what happened, first. Lets take facebook and what they did there. Within a year, they brought an action against nasdaq. Fined them 10 million and made them undertake certain policies and procedures, make a report to the board, and then also make a report to the s. E. C. Did they have them do anything that would prevent a fiasco again . They were supposed to create personn personnel, get analysis of thei they had software failure. We dont know if it is software. We know it is not a squirrel chewing on a wire and be noing o knocking out power. Which happened in the 70s. Thats not the situation here. There was some reports yesterday, some and rumors saying that maybe it had to do with some type of hacking, a breach of the system. It is a little bit too early. This morning, were hearing more. We cant dismiss that at this point, right . I dont think you can. I found a chairmans statement interesting. She said, let me read it for a second, she said this is a statement i think put out last night. Todays interruption in trading while resolved before the end of the day was nonetheless serious and should enforce our collective commitment of addressing technological vulnerabilities. Vulnerabilities. Which could mean external or inherent. I think thats what caused a lot of people to say was this a breach . I dont know. That doesnt i mean, Technology Inherently has vulnerabilities. That doesnt imply a virus or hacking or anything. Software glitch could be. Keith, thanks for coming in this morning. We appreciate it and also talk about the other issue. Thanks. Keith miller. Coming up, a perspective on yesterdays freeze and the implications as well. Ade and invest their own way. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. A quarter million tweeters is beare tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. Every day were working to and to keep our commitments. And weve made a big commitment to america. Bp supports nearly 250,000 jobs here. Through all of our energy operations, we invest more in the u. S. Than any other place in the world. In fact, weve invested over 55 billion here in the last five years making bp americas Largest Energy investor. Our commitment has never been stronger. Join us on scott nations. The show is interesting. Is, it reminds me of an over the counter for the nasdaq. If you can do things with dark folds, are the prices good enough to where you can avoid the legal liable of getting the best price . Or all the other exchanges. I dont know why eventually you could not have changed the competition. Thank you. This might not be better fixed with regulation. It Metro Detroit be better fixed with competition. I think what has to happen is the changes have to reopen those stocks. If the other exchanges have to reopen nasdaq listed stocks to give people a chance to get out say the last 15 or 30 minutes of the day, i think thats the way to solve that problem. Because the issue was not that you couldnt trade. This was not i put in the order, it doesnt get executed. There was no pricing data, so you are nervous about putting in the order. You dont know the what the trice price is on the other side. Price is truth. If you dont know what truth is, you cant trade. In this case. There are different truths we know. Different fold, different exchanges. Some of the trades could have listed nasdaq stocks. I think thats the first thing that needs to happen is, the exchanges need to get together and say if this happens on stocks are listed on a particular exchange, we give them a chance to come back up. If they cant come back up, we will come back up the last 50 or 30 minutes of the day so people can get up. During flash crash, two major exchanges shut down. Some of the others did not want to shut down. Finally the sec said for the, you got to do it the other way. This leads to the other question or problem. It is not connectivity. It is communication. Nasdaq today horrible job. I know joe has been beating them up. Who . You have been beating up the nasdaq about the navigation during the course of this thing. Not really. I just read that stock, people couldnt trade until like noon or something. They didnt hear about anything until after 2 00. As an example, carl icahn has figured out to twitter. Its not teens or math class. For 70yearolds. From the time of the out annual until the market closedment, nasdaq tweeted within time. It was some silly tweet about we hope to be back up in 20 minutes. Its not the connectivity, its the communication. You dont have to tell them, hey, we got our technology guy working on the ether net cable. Right. Tell them what you are thinking. Theyre all working on fixing the problem. So there is nobody that can answer the phone. Including the executive assistants and all the flack. I think that the goldman thing on tuesday was even worse than the nasdaq thing because with the goldman. You trade, we dont know how erroneous it was. Some of them werent particularly erroneous. I talked to a good friend who makes j. P. Morgan options. He said he did some option trades on Tuesday Morning about a nickel away from fair view, which is completely reasonable on the open. He did not know what his position was in j. P. Morgan until about noon on wednesday. Thats ridiculous. Exactly. He didnt know if he was short 50,000 shares or long 150,000 shares. Thats a much bigger issue. The markets are moving continuously. Are you back here to be on the show tonight . I will be on options action. In the studio. You dont come back every week to be in studio. I come back every week. We do it from the nasdaq. I know that, i watched it. We know you are a number one fan, joe. I dont know what happened there. So you are back here as i just said. Talk about all those butterfly spreads and collars. You like to talk about those naked straddles most of the time, dont you . Go ahead, lets get out of here. I am not anthony weiner, to let you know. There, i was just thinking of tweeting. Okay. Guys, coming up, live from the packs market side right here live in times square. We have the ceo of nasdaq, he will be with us at 7 30 a. M. Eastern. We got that and a lot more. A big two hours of squawk box coming right up. , i knew testose could affect sex drive, but not energy or even my mood. Thats when i talked with my doctor. He gave me some blood tests. Showed it was low t. Thats it. It was a number. [ male announcer ] today, men with low t have androgel 1. 62 testosterone gel. 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In a clinical study, over 80 of treated men had their t levels restored to normal. Talk to your doctor about all your symptoms. Get the blood tests. Change your number. Turn it up. Androgel 1. 62 . Easytouse platform. No, thank you. We know youre always looking for the best fill price. And walk limit automatically tries to find it for you. Just set your start and end price. And let it do its thing. Wow, more fan mail. My uncle wanted to say thanks for idea hub. He loves how he can click on it and get specific actionable trade ideas with their probabilities throughout the day. [ male announcer ] open an account and get a 150 amazon. Com gift card. Call 18882800149 now. Optionsxpress by charles schwab. And experience the connectivity of the available lexus enform, including the es and rx. This is the pursuit of perfection. Hey, good morning him welcome back to squawk box here on cnbc. Im joe kernen along with Michelle Caruso cabrera. Andrew ross sorkin is at the site where it all happens. We will get to him in just a minute. Who gets a cold on vacation . Summer. The airconditioning, after you sweat. The futures right now. I think tim was right the markets are getting used to the traveil vail travails of technology. Today, were down 15, its august. Its friday. In the studio for the remainder of the show john, which is cool. Cnbc fast money contributor. Dr. J. Yeah. Cofounder of option monster. Com. When i saw you were going to be on. They asked me in makeup, if he was on. He will be sitting down there with andrew. Are you here. I get to take over andrews seat. Yeah, you do. Its nice and warm. Still. Hes over there where all those guys are under the big pressure today. The hot seat. Thats the real hot seat today. Lets get to the nasdaq where we do find andrew this morning. Your seat is still warm, andrew. I didnt know what you, where youd go with, dont ask. Dont ask. Dont ask. Okay. I want to ask you a question. All right. Go ahead. Were here live, of course, at the Nasdaq Market site where the nasdaq was halted for three hours. We do have the ce of of nasdaq coming up at 7 30. In the meantime the great wonderful Bertha Coombs has been reporting on this nonstop. I will send this over to her. She has details on how to explain what might have happened yesterday. Bertha. Thanks very much. This morning, the nasdaq is saying all systems. After the least they appear to be operating normally. Last night they said the problem had to do with an Exchange Purchase with having connectivity issues. Those issues with whats known as the sip, the security information provider, essentially, the feed that tells us all what the quotes and prices are on these nasdaq stocks somehow that connectivity is reporting to the nasdaq led to dedpradation in the ability to provide quotes. They dont name the par tis pavenlt heres what we know. In the morning about 45 minutes into the trade, we started seeing some notices from ny kre arca, the electronic platform to traders. At 11 15 they said they were having issues with messages on routed orders. It was resolved ten minutes later. At 10 50. They said arca was unavailable for some nasdaq tickers. Then at around 11 10, they said they were having difficulty processing outbound quotes on those same range of tickers. They said it was resolved. Then we go and we get about an hour later, thats when the nasdaq starts saying, hey, we are seeing some problems with the sip the quoting system is having some issues. A few minute later, they say not just option, which initially is what they said the issue was with, but all nasdaq. Tickers, so all nasdaq tickers go down then within a half an hour nasdaq said they had resolved the issue and they knew what it was. They told participants how they would reopen the markets. But it didnt happen until 3 25. Because they had to coordinate with all of the exchanges an regulators, to make sure that it was a smooth open and for the most part it was. But we also know that nysc arca going into the close again had issues. In fact, some of those trades for nasdaq tickers were busted. The ones on the nasdaq system were not. All right. Thanks for that breakdown. In the meantime, where were the regulators during yesterdays nasdaq debacle . Protecting us . Saving the world from all of these things. Senior correspondent scott cohn is here with that part of the story. I know how much you like regulation. And have so much confidence. And theyre still coming off the printer. But theyre not in effect yet. These are sec regulations. Theyre president posed regulations. Not the actual ones . Right. But they were on top of at least the tech following side of this. For months, the sec has been pushing that big set of regulations for System Integrity to replace voluntary standards, some of which date back to the 1987 stockmarket crash when they were trading stocks in 8s, but the industry has been pushing back on these regulations. In their Statement Last night, sec chairman barry white basically said we told you so. Todays interruption in trading should reenforce our commitment to addressing technological availabilities. She promised to push the commissions proposal, which is known as regulation sci, for systems compliance and integrity. It calls for regular testing and notification if something goes wrong, also evaluation by outside parties t. Sec proposed the rules in march ap put them out for Public Comment a couple months, then extented the comment until july because so many people had 13something to say, including nasdaq. The Regulatory Organization to complain. They sent the letter three weeks ago saying parts of the rules were vague and overbroad, not to mention underestimated. They have been opposed because they are concerned about excessive costs. If you are the nations marketplace, you have a an obligation to have a market with spegryty. Now to be fair, a lot of market players, not just the exchanges, wrote in to complain about the proposed regulations saying they had a lot of issues with them, others complained the safe guards did not go far enough and we should point out, this is about the technology as bertha said, they think they got the technology figured out half an hour into it. Then for the next what, twoandahalf hours, it was how do we get back opened . So there was the coordination between the exchanges and you have been talking about why cant they just trade elsewhere, because of the prices. What i have been told is one of the ways that these dark pools function is they arbitrage their tape against the nasdaq tape or the sip tape that comes out. So they didnt have that to trade against. So thats one of the reasons that they couldnt, inition to. They didnt have clarity on prices, absolutely. I guess my question is, you and me, we go into a dark pool. I know i dont have all the information i need, i need to sell right now. I will bear that risk. Lets go. We dont know that that didnt happen. Thats a good question. We dont know that didnt happen. Its a lot harder to happen if you dont have all the information and you are a fiduciary, you are going to trade all this information. How is this driven by the fact that there is a monopoly supplier but a deemed kind of are you the supplier of the market data and wouldnt it be better if they could better compete in terms of being the supplier of information . Right, there was a lot of talk in the midst of all this yesterday, how does the nasdaq tell everybody, dont trade in fact stocks . Exactly. Where do they get the short to do that . They that National Market system, they are who determines what the best bid and offer is. So for the rest of the world thats trading those stocks, to make sure that michelle is getting the best price and its not trading through the bid or through the offer, right, thats why they have. Its a rude goldberg system. You got the fork Stock Exchange which has tape a. Then youve got the amex on b and the nasdaq on c. You got these three different tapes running out there. Tapes being the bids, the prince of the trades and so forth and they want to continue to derive revenue from all of these. So its all about revenue. Its always about following the money, scott, as you know. The money stream. Exactly right. They dont want to share that money. They do have to. The sec was smart enough to make sure if a print happens somewhere, wherever that print happens, whatever the percentage of the overall trade it is, they get paid. So scott could be trading on the chicago stevenlths you could be trading on new york. You might get 90 of the business, you get 90 of the tape revenue and that example. But thats why its so convoluted because you are paying hfts, High Frequency trading firms, for instance, for providing liquidity because theyre printing on your exchange and so this is all to accommodate all this, like i say, rude goldberg system that doesnt make any sense. Its not set up for ma and pa, this is set up for, unfortunately, very rich, very sophisticated trading firms. We have another voice joining us, the former chief of the secs office of market intelligence, its like army intelligence. Exactly. Like Good Government or ethical lawyer. Its weird. Anyway, thanks for joining us. We appreciate it. Thank you. And your point is, we just really nasdaq yesterday said let us figure out what happened before we go off. The sec really needs to know whats going on and get better visibility into these incidents before deciding what can be done. Then something theoretically could be done and it wont happen anymore. Is that possible . It is possible. You are absolutely route right. The sec needs, they put out a proposal for a consolidated audit trail. It will get them granular trade data. They need to be the adult in the room here. These businesses have enhanced automated trading to incredible lengths in the last ten years. And the regulator has pretty much with the system allowed a hands off. They proposed regs leak you talked about or just mention, but what they really need is a market study and the sec needs data. We need to understand what is the purpose of our markets. Is it to allow the mom and pop investors to buy for the future . You know, should we allow those same markets to be inhabited by professionals, the High Frequency traders who may have other motivations . Should we, you know, essentially, should we let our moms and pops swim in shark infested water . I always get so nervous when everybody holds up the mom and pop investor. Give me a break. Let me tell you what i saw during the reconstruction after the flash crash. I cant tell you the number of investors i spoke to who bought shares that morning at say 100,000 of a 100 share. Put in the 90 stop order. What they saw, their stop loss kicked in because of the immediate. When ultimately, liquidity left, they got executed at the price. So here they are in the morning, they got 100,000. In the afternoon, they got nothing. I dont know if ultimately thats the way we want our markets to operate. Thats obviously an extreme case here. I was just thinking about how many shares trade every day and i hate when this happens, but then there are times when i think, wow, im surprised it ever goes right. It almost remind me of when you hear about something happening when someone gets cancer. You realize that the dna hardly ever screws up and its almost always fixed and we should be surprised that all of us arent always something. It is amazing that this works as well as it does sometimes, isnt it . Yeah, i agree i think they dade fantastic job of going missouri by moment of what happened. Now that is now a great blueprint for compliance departments and exchanges and alternative Trading Systems to use to understand what they cant do, they have to be careful. So every event that takes place, we do get better, i think there needs to be there is this sick sigma, a lot of companies have that. Its not zero errors in 8 million. Its 4, its never zero. I wonder if we can ever get to zero with these automated systems. That would be nice. Thats your foley. And, joe, if somebodys purpose is to basically throw sand in your face, so that you cant see whats really going on, whether its Something Like there spoofing where they basically try to make it seem as if somebody is aggressively buying a particular stock. Then they flip around and sell it, which may have been going on at apple yesterday, may or may not have been going on. It sounds like an ad advanced boiler room, its been the same issues when you had humans running the shop. These kind of practices need addressed. Hopefully, that stack of papers scott has over there are a part of that address. Because this has not been a fair became for a very long time and hopefully Mary Jo White and some of these others do so. It will be a fair game . It could be fairer. I dont think it will ever be balanced so that somebody with the horse power to run nanosecond trading will be able to to be on the same field as someone that shoots in an order every two or three months. Remember, this was two hours. This was three hours. Thats a long time. I cant thank you. We appreciate it. Spoofing . I got very nervous with this. We looked it up. Interest spoofing . Spoofing . They have spoofing. They do, a spoof or a parody. Spoofing is, you are trying to get it running in one direction. Flip it over, go the other way. Its called the boiler room. These are horrific practices that arent good for anybody. Its why they top out all of these exchanges, pipes, they fill them with quotes and cancelled orders rather than real trading. Still to come. Anthony weiner. Bob greifield discusses yesterdays glitch and what he plans to do about it. Later, big names from jackson hole join Steve Liesman, Dennis Lockhart then at the top of the hour, st. Louis fed president James Bullard joins us as well. Its all coming from the feds symposium in jackson hole, its right here on squawk box. Stick around. [ male announcer ] its time. Time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Its time. Welcome back to squawk box. American airlines and usairways are asking for a november 12th trial date as they find the Justice Department challenged their proposed merger. Would apply 90 days before the trial begins. They have requested a 180 day period. The airlines say that will be far larger than other trials. Matthew martoma faces expavended charges in an Insider Trading scheme a. Rewritten indictment says he tried to get more than 20 doctors to provide information on a secret clinical trial. Ambitious. He succeeded with at least two. He has pled not guilty to conspiracy and fraud and scheduled a Court Appearance this morning, in fact. In what some might consider a sign of the times. Jack daniels maker is build agnew 100 million distillery at its tennessee plant. Growing demand for its flagship whiskey. It will increase production 1520 . Global sales of the jack daniels brand rose 9 last year. Its the first all new distillery for the Company Since prohibition. Were talking about regulation gun laws. They built other distilleries. Prohibition . Since prohibition. Andrew has it going. All three indexes ended higher yesterday despite that system dplich that stopped trading, more than 3,000 nasdaq listed shares. Some conversation in the morning. Phil obrien is the ceo of direct ed and a former Senior Vice President of the nasdaq. We want to get your perspective on all of this. Who do you blame in all of this, be ill . I think you have to start with nasdaq. It was a nasdaq issue and i really hope they Start Talking about it going forwardment i think the entire Industry Needs to respond to it because what happened yesterday is unacceptable. But this particular issue was nasdaqbased. So heres my question, are we in a world now where we node to accept that there are going to be glitches. We were talking in the 6 00 hour the New York Times website went down, google went down five minutes. We have been having crash classes. Or do we suggest there is Something Else going on and the bicker issue is how the nasdaq or how any of these Companies Respond to the ultimate problem . Well, stuff happens is not an appropriate response. We have had exchanges. Its the Second Largest Exchange after nasdaq. We have a responsibility to investors to really manage these risks. Every industry, you are right, relies heavily on technology and so we need to have Risk Management frameworks in place so we can anticipate issues, try to prevent them and respond to them effectively when they do. Thats our responsibility. Andrew, i want to talk about a conversation before the break here and ask him about it. Theyre a monopoly provider of this particular data feed, direct . Yes, all the exchanges have to feed into a Central Point nasdaq acts as a service provider. They will be the ones that do this . When they were selected in 1975 within they effectively had 100 of the market share, its persistent to this day. Is there a possibility of providing this data in. The talk about competing sips has been out there a long time. It shows we have a single point of failure, what happened yesterday is not about complexity. If you were going to offer that up, what would you say, we have Better Technology . What is the selling point . My sip is better than your sip . I think you have fee competition. I was thinking about reliability. You wouldnt have a singt point of failure. Markets could be in multiple sips. If one goes down, i have the information. They do that in a rude goldberg pack by getting data from multiple exchanges. This would give them multiple single points of content from providers. Could reduce the risk. Phil, you worked at the nasdaq, this an nyce problem . We dont have answers on any of this . I think its a nasdaq issue. I hope they talk about it that way. Anyone running this technology should be prepared if an individual exchange has a problem, it shouldnt cause the whole system to go down. What would you like to see the regulatory body do, how do you think the nasdaq and other exchanges should be reacting given thus far theyve pushed back on some of the rules proposed thus far. I dont think thats true. Direct exchange has been a supporter of the concept of regulation sci, which is what you and scott cohn were talking earlier. I testified before congress in june, 2012, saying we need greater sec oversight of exchange regulation. I think that said, you need to get that done right. We had some concerns and that regulation for example regarding cyber security, the scheme mat tick for Hurricane Sandy and whether or not absolutely you need to be opened if Public Safety is threatened. So we need to get that right. Its not about regulation being a cureall. This is a confidencebased industry, right . You dont walk into the restaurant you dont know unless you see the a from the new York City Department of health in the window beforehand. This will create stampbdz that market producers can get confidence from these risks are being properly managed. Real quick. We have to go. If you have one question to ask bob, what would it be . What are you doing to reduce these risks . Thank you, bill. Present it. Coming up, we do have the nasdaq omsc first, how yesterdays glitch was handled. What went wrong. How to prevent it from happening again, central bankers meeting to discuss economic policy. Dennis lockhart will join Steve Liesman live. Squawk box comes back with a lot more of the break. [ agent smith ] ive Found Software that intrigues me. It appears its an agent of good. [ agent smith ] ge software connects patients to nurses to the right machines while dramatically reducing waiting time. [ telephone ringing ] now a waiting room is just a room. [ static warbles ] [ good and close. Ng ] now a waiting room is just a room. Discover the new way to help keep teeth clean and breath fresh. New beneful healthy smile food and snacks. Hell love the crunch of the healthy smile kibbles. Youll love how they help clean. With soft, meaty centers, again, central bankers meeting healthy smile snacks help keep a shine on his smile. Its dental that tastes so good. Again, central bankers meeting we provide the exact individualization that your body needs. 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Welcome back to squawk box. In the headlines this morning, moodys may cut Credit Ratings for some of the major banks, j. P. Morgan chase, wells fargo and morgan stanley. Moodies says chances are small ter government would fully bail out Bond Investors in financial stress. House Speaker John Boehner is talking about using a threat of a shutdown to stop president obama reform plan. They said they should remember the political backlash the republicans suffered in 1995 and 96 because of the government shutdown. He says he is committed to stopping obamacare. We will be watching retailer aeropostale today. They say it expects another loss for the Current Quarter. It issals increasing the number of stores that it plans to close. All right. Lets get back to the nasdaq. Andrew. Hey, thanks, michelle. I am joined by bob greifeld ceo of nasdaq omx. The man of the moment. We hope we can try to figure out what happened here. Obviously, a lot of frustration. I dont need to tell you how much frustration. Just explain, if you could, what exactly happened . I think most of us dont understand. Sure. What happens is that we have a data feed which consolidates the trading for 13 exchanges. We do that for the industry. Had a problem. As soon as we saw that had a problem, we had a fundamental concern. We few professional traders had access to individual data feeds, be you the traditional long investor, Retail Investor didnt have the same information. Because of that, we halted. The symmetry. The hedge funds and the bing banks. And they would have access to proprietary feeds individual exchanges, the consolidated feed which we operate had a problem, wasnt giving quotes out, it helped the market because of that. We didnt want to have a situation where the asymmetry as we say. Have you invested enough in your systems between this problem and honestly the facebook fiasco, there are people out there saying, you know, how is the nasdaq in business this way within they can have a problem with these types of macny tudz . The first thing is we invest a lot of money in our systems. Our uptime is 99. Something percent its very high. I think where we have to get better is what i call defensive driving. So the systems are able to operate by themselves and this system has been in operation for 20 years. Defensive driving means what do you do when another part of the ecosystem, another player, has some bad event that triggers something in your system . You have to, its our ability as systems operator to hand him those kind of unforeseen situations. You are eluding to other Stock Exchange systems and arca . We have to be responsible for good defensive driving. There will always be issues within the ecosystem. We dont live in a mon open listic world today monopolistic world today. It sounds like this pipe is your pipe . Whats that . Its our system. The question, should there be more pipes . This is a closed system. You guys are own the pipe. Would we be better off from a systemic issue by having more pipes, more players . More than one consolidator, i couldnt arc you against that. I think i have to highlight, in the world we live in defensive driving is an important skill. We will get better at it. We spin at lot of time and effort coming up with scenarios where other things happen outside of our control and how we respond to that. This is an example of that. Arthur levitt, the worst part is the lack of transparency, it is inexcusable. It took the nasdaq far too long to respondment we are happy you are here this morning. How do you think of the issue of disclosure and talking about these issues . Well, i would have to disagree in a quite emotional way with that statement. Whats interesting is we have to focus on the operational aspects of the problem while the problem is transpiring. We did a number of key things, one, we had an open line with the committee. Constant communication, not episodic. It started around 1 00, 1 30. So our fellow exchanges, our customers had open lines into us. In addition to that, we sent out 22, 22 head trade alerts. You have to focus on the operational impact. All right. So the people directly involved with the problem. Those people had the stake in the game of the moment had to do things themselves to respond to it. We were in constant communication with them. Right. Were we on the tv at the time . No. We are not, no, definitely not. Why not . Our job first and foremost is to focus on what understanding, solving the problem, which we did in the first half hour. Then coordinateing with the other people impacted to make sure that we come back in a very orderly and fair way. And what were satisfied with yesterday is we took the proper amount of time, all right, to make sure that the testing was done, that the communication yesterday was so strong and which got that communication done. We came back and came back successfully. So its not our job, nor will it be for us to go on the press, you no know, to the press to public while we focus on the issue. What is nasdaqs liability in all of this . When you measure the potential liability as a result of what took place yesterday, how do you estimate where things stand here . Well the way we handled the problem is there is no liability in that you look at the fact that we called into market. As soon as we saw there was information asymmetry and professional traders would u could have some advantage over if traditional long investor, we halted the market. No trading happened. It was a regulatory halt. So nobody was relatively advantaged or disadvantaged. Right. Everybody was on the same footing. We came live at 3 25, everybody started as if it was the opening of the day. So from that point of view and we hear this from our customers today and yesterday that this was handled well in that everybody was in the strength mode at the same time under the same conditions. The sec proposed a number of new systemic rules around exchanges. Thus far, you were pushed back, the exchanges pushed back around some of those rules. Would you change your view about some of those rules given the experience of yesterday . Well, i think when you look at the details of the rules, will is always ways to quibble. But the fire spirit of the rules are there. And we think, in fact, we want to go further on this concept of defensive driving. All right we have 13 different exchanges, hundreds of Market Participants. We are interchecked in a number of fundamental am ways. We all have to be aware of the other person will not act always in the proper way. You have to have your system be able to handle defensive driving. So we support what the commission is doing. We certainly think this should be an intensified effort at how do you build a defensive driving mechanism . What do you tell two constituencies this morning . The clients of nasdaq and why they should have confidence in this exchange and what do you tell the public who has so many questions about whether the Playing Field is level, whether the system works, whether they should have confidence in the markets . Right. So, one, we deeply are disappointed with what happened yesterday. We aspire for perfection. Right . We want to get to 100 uptime. We spend a lot of time, effort and money to get there. We didnt get there yesterday, obviously, thats a problem. We had to continue on that quest. But its important to the recognize we have to have the ability to handle the situation properly when a problem arises. I can never commit to anybody that there will never be a problem. We have to commit to is we are going to work as hard as we can to get to 100 and to the extent we can, we can achieve perfection, there is an issue, that we have the proper procedures in place to respond it to. Thats what we did yesterday. We took our time understanding what the problem was. We resolved the problem and then we coordinated with the industry and came back in a logical, organized way. We are quite proud of the fact we had an orderly market close for the balance of the day. Two final questions. What does this do to your ipo business . Sample one is i think people respect. Where we are getting the comments today that we did handle this process in a proper way. We want to get to perfection. We want to get to 100 reliability and we are Getting Better at that all the time, you can see the instant of trade problems in the industry has gone down. You cant quite get that from the press. What you look at daybyday, week by week, month by month in this fragmented world, the world is Getting Better. I think people recognize that. Final question, have you had a discussion with your board about the six and what have they said about you . Meaning, is your job on the line in all of this . Certainly, its my job to update the board. We havent doen that, we will do that in short order there. Certainly, we stands by our performance again over an extended period of time. We are opened for business in the u. S. And around the world. We operate 70 markets around the planet and our track record is superb. Its not perfect. We want to get there. We want to aspire to that, we are working hard to do that. Bob greifeld, we percent appreciate you coming on, having this transparency. I do know there remains a lot of frustration. We did this on your home court. We did this morning. We appreciate that. Guys, we have a lot more to come. We will be heading to jackson hole where central bankers from around the world are gathering to talk economic policies. Steve liesman will be brick us the first on the cnbc interview with Dennis Lockhart, squawk box is coming back after a quick break. Every day were working to be an Even Better Company and to keep our commitments. And weve made a big commitment to america. Bp supports nearly 250,000 jobs here. Through all of our energy operations, we invest more in the u. S. Than any other place in the world. In fact, weve invested over 55 billion here in the last five years making bp americas Largest Energy investor. Our commitment has never been stronger. That your mouth is under attack, from food particles and bacteria. Try fixodent. It helps create a food seal defense for a clean mouth and kills bacteria for fresh breath. Fixodent, and forget it. Every day were working to and to keep our commitments. And weve made a big commitment to america. Bp supports nearly 250,000 jobs here. Through all of our energy operations, we invest more in the u. S. Than any other place in the world. In fact, weve invested over 55 billion here in the last five years making bp americas Largest Energy investor. Our commitment has never been stronger. Well come back to squawk box. The futures have been marginally all morning. Its the best level i have noticed only five or six points now on the industrials. Fed heads are meeting in jackson hole. Our senior economics reporter Steve Liesman is there covering the event. He has a special guest. Hey, steve. Reporter good morning, joe, im at the conference at Federal Reserve with the president of the atlanta Federal Reserve bank Dennis Lockhart. Good morning,. Good morning,. You are casually relaxed. I am relaxed in jackson hole. Reporter are you relaxed on the future. As relaxed as a central banker can be. Im looking forward to the september meeting. We will see what decisions are made. Reporter tell me if you have a clear path with the incoming data, where decisions can be made and what those are. Well, if you were to build a case from scratch for some action at the september meeting, will is not a lot of data between now and then. So we wont have a great deal more information. What im thinking at the moment, im actually looking at the data and asking if they deny or in some way undermine the basic outlook that i have in place and on that basis, then i could get comfortable with the move in september of some kind. Reporter what does that mean . Does that mean the data enhanced so far makes you look confident and second bound rebound . I am confident in a continuation of this sort of pod rat growth path t. Strong pickup in the second half into 2014 is in my outlook. Its in my official forecast, but were going to have to watch it very carefully, because the data is not coming in in a way that confirmed that strong pickup in the second half. Lets talk about the outlook and then circle back to policy. When you talk about a rebound, what does the second half look like from a gdp standpoint . What happens to unemployment by your vision at the end of the year . Second half i think is, well, first it, i think the full year number is going to be between 2 and 2. 5 . So we would see something around 2. 5 or better perhaps in the second half to balance the first half. Now, were going to get a revision of the Second Quarter and the export factors could very well push that number up. So we might be looking at a little bit better picture in the first half than we thought we were dealing with before. So, but i think getting to 3 in the second half, i just cant see that at the moment, at least the early indications are not helping me come to that conclusion. How about unemployment . Unemployment, you know, i think well see some progress between 7. 4 and maybe 7. 2, Something Like that by the end of the 84. Reporter and that, in that scenario, are you comfortable reducing the amount of stimulus in the economy . I think the key question is, do we have even at this moderate pace of growth a sustainable picture something that will continue or is this some risk the economy gets knocked off its feet in some way and begins to head in a quite different direction . So as i said a minute ago, im looking at the data as they confirm my outlook and the picture that i have in my head. Reporter just to be clear that, outlook is for a reduction if september . Im talking about the economic outlook. I cant speak for the committee and we dont talk to each other that much between the meeting, so i really dont know whats in the head of my colleagues. Im just telling you how im processing this situation. Reporter and the way you process it, though, just to be clear, it seems like you are ready to make the move . I would be supportive in september as long as the data that comes in between now and then basically confirm the path were on. Reporter talk about the risks, when you think about making a move like this what are the risks both in terms of what youd have to do in terms of future policy and what are the other risks to the economy that must worry you . There is a near term rick that i mentioned recently, it concerns me. Thats congresss handling of the fiscal questions that come up in september. And if you will remember two years ago, we had a similar situation and Consumer Confidence dropped i think as strongly as it had ever dropped in this recession, so it could be a confidence blow of some kind if we have a really difficult political situation develop on the hill . How about when you look at whats happened to rates, does it make you concerned there has been such a big move and the effect on the economy . What about the effect on banks an their Balance Sheets move the other way . Well, i talked to bankers frequently as you might imagine, some of them have already taken some pain and theyre concerned, but clearly, they had plenty of time to plan for such a move and, we hope they can get through it without too much real damage. The great move so far, you know, have really created a different situation for ar longterm rates. I think its a little early to tell whether thats going to really create a contraction kind of impulse to the economy. Reporter did it show you something about how much effect quantitative easing is having on markets when the chairman gave that guidance and then the market moved so violently the other way . Well, if anyone believed before it was a neutral factor, after that move, certainly, your conclusion is different, i think, for sure. Reporter dennis, the Federal Reserve is going through a leadership change now. What kind of effect does that have on the central bank and its policymaking and is this something that you could recall going through whats happening right now . Well, the press, what word do i want to use here . The press treatment of the various candidates and the discussion of the, of who the president will nominate is probably unprecedented. Certainly in my memory, i havent seen anything like this. Thats what many people who have been looking, watching for a long time say to me. I think in terms of policy, its really has no influence at all. You know, we get together. We discuss policy, make a decision. The chairmans leadership is as strong as its ever been. So it really is not a factor. Some people suggest that maybe the chairman would be more likely to reduce quantitative easing. Put the taper in place. He wants to get that in place before he leaves. Some people may suggest it. But i think sometimes as people fail to understand, its a committee process, its a consensus process. The chairman, obviously, leads that process, but, really, doesnt dictate policy per se. So i think the committee will look at the economic situation, the outlook and make a decision and you know the succession question really is a secondary issue. Leave it right there. Thanks for joining us early this morning. Thank you, steve. Michelle, back to. You all right, thanks very much, steve, for that big interview. Still to come, jim cramer is fired up, ripped mad about nasdaqs ceo bob greifeld and what he told andrew here in the interview, tweeting just a short time ago . How can they say they hope to help the Retail Investor and didnt communicate to the press . Wrong, wrong, wrong, making the point they were informing industry players but not actual individuals. We will hear from jim in the next hour, can you read his tweets, too, he is angry, plus, st. Louis fed chairman bullard will join us 8 15 eastern time. Squawk box is coming right back. Otherworldly things. 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Well, i think obviously this is a little wakeup call, there are some frailties in electronic trading. I think its important for people to remember on balance were all net benefit fisheries of electronic trading. We have seen massive improvements in liquidity, massive improvements in the net transaction costs most investors are experiencing. There are issues when these types of things come up with communication between Market Participants. I heard the chairman in the nasdaq communicating with Market Participants. I dont know how effectively he may have communicated with others. Were material participant in the electronic trading markets ourselves. What we were receiving were simply emails. We werent getting a lot more detail than anybody in the media was. Thats unfortunate. Said, we have to recognize. We did see this after the market reopened that it did manage to shrug it off pretty effectively. Most of the names that were suspended for all of that time were really not hurt materially in terms of price other than nasdaq, itself, which deserve to be. Mike, did you get more emails than what we got . Because we were on the air any any moment the minute we got information from nasdaq . One or two emails more than that . I would say in situations like this, if you are a material market participant, probably what should be happening is we might want to get a phone call or Something Like that. I dont think it should be just waiting for something to pop into your inbox. A lot of the communication, of course, ends up being initiated by countertrading partners like ourselves, when we see there is a problem, we tend to be counteractive. I would say communication was lacking just a little bit. Said, sometimes its hard to communicate when you dont know what the problem is or you dont recognize it right away. Thats bound to have from time to time with technology. They built a lot of failover into technology. You cant anticipate every single problem, so you might not recognize it when it comes up. Im trying to figure how many people still trade stocks. Then once i figure out home people still trade stock, i want to physical out how many of that population were trading in that three of hour period. We are talking a small group of people, thanks anyway, mike chouw. Dont miss options action tonight at 5 30 eastern. We have heard from Dennis Lockhart. We will talk to jim bullard the st. Louis fed president next. Od. Discover the new way to help keep teeth clean and breath fresh. New beneful healthy smile food and snacks. Hell love the crunch of the healthy smile kibbles. Youll love how they help clean. With soft, meaty centers, and teeth cleaning texture healthy smile snacks help keep a shine on his smile. Its dental that tastes so good. New beneful healthy smile food and snacks. We provide the exact individualization that your body needs. 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Equities futures are not only down two, its been the most i saw was maybe 15 an 11 and five now, almost turning positive, now, lets get back to Andrew Ross Sorkin standing by down at the nasdaq, closer to the little bit quicker drive for you this morning, right . A little bit, joe. Of course, trading in thousands of stocks ground to a halt after a technological problem shut down trading. Its the latest disruption to the operations of the u. S. Market. Now we should say sec chair Mary Jo White is calling for a meeting of wall street leaders to help ensure the quote continuous and orderly functioning of securities markets. Earlier this morning, we spoke to nasdaq ceo bob greifeld first on cnbc. We aspire for perfection. We spent a lot of time, effort and money to try to get there. We didnt get there yesterday. Obviously, thats a problem. We can continue on that quest. But its important to recognize you have to have the ability to handle the situation properly when a problem arises. I can never commit to anybody that there will never be a problem. We have to commit to is we will work as hard as we can to get to 100 . To the extent we can, we can achieve perfection. There is an issue that, we have the proper procedures in place to respond it to. Thats what we did yesterday. We took our time understanding what the problem was. We resolved the problem and then we coordinated with the industry and came back in a logical, organized way and were quite proud of the fact we had an orderly market close for the balance of the day. Jim cramer tweeted during that interview. He was not a happy camper. They didnt communicate to the press, wrong, wrong, who wrong . We will talk to cramer later this hour. In the meantime, lets bring in Brian Sullivan who has been covering this story almost 24 hours now, brian. I am kur kwlaus you thought bob greifeld had to say defending nasdaq this morning. Andrew, a great job getting the interview. You dont know when you dont know or your team doesnt know. We heard about connectivity issue, maybe the arca has been indirectly fingered in that. What exactly does that mean . I was reading a ton of stuff last night. We were, obviously, covering the story all day. Most think a minor technological glitch. There were some out there. The usa today for one hinted around quoting somebody, programs it could have been something a little more devious. If reality is we dont know. We need a little more information on this. I think to your point, andrew, when this happens, just communicate. You need to get the senior level executives. I dont care if you are on nantucket, paris, saint barts, wherever you are, its so easy to call in or get in front of a camera or issue a statement saying, listen, we got this going on, mot just the regular updates on the nasdaq website. For all intents and purposes, aen drew, were a technological gobblety gook. Do you buy the argument they were trying to protect the Retail Investor because the argument was that actually the High Frequency guys still had access to all the numbers. It was just that everybody eld did. So they felt they had to shut things down . I do agree with that argument. We pointed that out. We were talking to rich that covers the exchanges, he called in by phone. We gave him a ring. He was saying we are still able trade in some respects. Brought out the point, if im sitting there, or im a wall street firm, i might be able to route my orders, john, you would know more than i would, can i route my orders to exchanges that maybe at that point were still operating where if im at oem with a t. D. Ameritrade or schwaterbury, i might not be able to route them to spots, you so you have to make the Playing Field. I know it will never be equal anyway. You cant have some people able to trade and some not. And or communication to some people being so much better. I mean, to that fact, we kept asking on air yesterday, you kept demanding, brian that, somebody would address this from the nasdaq and they didnt until basically the end of fast money. 5 40. Then all they did was give up a time line of what happened yesterday. They been us any explanation. Bertha weighed in as well in the interview he said to you, andrew, they were communicating with some of the key Market Participants, what about the rest of the world . Why arent they as deserving with the information as everybody else is . On that question, lets go to ryan geffner. He is joining us now. Good morning, ron. Good morning. On that issue the communication issue, bab greifeld said, frankly, he didnt need to tell everybody, what he ned to do is communicate to the trading community. Does that make sense to you . There is two things of communication, how we advise our clients, if are you not sure, saying something wrong is just as bad as anything else. While people are screaming i wish they would have said something, if you dont know whats going on. His question is i was getting there. Give me a couple many wants to warm up, okay. Nasdaq is not a client. No, nasdaq is not a client. If you are going to say something, say it right or dont say something. Separately, it should be a parody of communications to all. So its a function, we are talking about markets being equal Playing Fields. Thats what the United States markets are communicated on. Nobody should get special preferencial treatment. Pa wr ity not parody. Right. You wonder because of the, i dont want to call it o obsfuscaings. It sounds like they are figuring it out. Which is a little more concerning if it was a third party and what there are 13 exchanges, 40 dark pools. If a dark connectivity issue can bring down all nasdaq trading, joe we have a problem. You are only as strong as your weakest link. Brian, this goes back to the idea there is only one link. Because all of these 13 different exchanges go into one cable. If cable is owned by nasdaq. One of the things we heard this morning for the first time was bob greifeld suggesting he would be in favor of a competitor coming on the market. I dont think we ever heard of that before. Im saying if you have a train that has 13 cars, right, theyre the same train and one jumps the track, the whole train is coming down. I think thats what we saw yesterday. If you have two tracks an everybody is yes, that itself a separate issue. They will build a second track. Listen, im sure the High Frequency traders, theyve already built their own tracks . He didnt sound thrilled. I dont know if he was in favor. He said, yeah, maybe thats what we need to do, begrudgingly. Not begrudgingly. He was okay with that. I dont think we heard that before. Almost forced to that conclusion. I had gone back and looked. He had been asked that question in previous years and had suggested that the way this had worked previously was perfectly fine. To me, that was a shift. Andrew, it was that taped sea, you know, the nasdaq original nasdaq listings and those as he said since 1975 that has been in place for the nasdaq or tape c. New York Stock Exchange tape was unaffected by this. So it wasnt that every tape was affected as has been implied here and there, this was just the nasdaq tape, just that tape c. Right. Nobody got screwed like last time. We heard the guy on earlier who said that people put in a limit stop at 90 and when it finally traded, they got ten for it. Were not hearing that, are we, andrew . No, were not hearing that. What im curious, if i could ask ron, you know, one of the questions i asked bob was about his legal liability. I was surprised. He sort of shrugged, the question is there is no legal liability. Do you think thats true . Well, there is very limited legal liability that they may have. They are under section 6 of the exchange act, they benefit from immunity. They act almost like a quasientity, 2646, there is 3 million for the entire month. Also the user agreements in that liability, where they have every member who assigns it, there is, they disclaim any liability against the exchange. Could they be fined by the sec . They could be fined be i the sec. If you look at the facebook ipo, there is a special exception that was made for it, go imp the potential costs and damage to the marketplace, its been very limited. Beswhiedz they got relative to what happened, do you think it was too small . Im not saying it was too small, im saying there were people suggesting it was too small. The conflict comes up, guys. To rons point. I love it. As you said. If im ever in trouble, im finding this guy. Im giving him my card after the show. You say there is quasigovernmental entity in a way. Theres where the conflict is. They are a publicly traded corporation fiduciarily tied to their shareholders. They are given special treatment, immunities, if you will, sometimes i believe, i think were seeing the avenue of conflict between being a publicly traded corporation with certain duties over here an yet acting i dont want to call it a good will agent but a dotorg over here, exactly. Theyre not always going to mesh up. Im not suggesting its perfect. A lot of the laws, this came out in 1934. Its a different world today. Then you got these dark pools obrien was if from direct edge. You got these third parties or etis, the only reason they were able to survive is in fact that tape revenue, which i asked bill offair, he said, yeah, we werent profitable until we were able to get that revenue from the tape, in other words, within they became a Real Exchange and they could participate in the tape revenue. This all goes back to that tape revenue. These guys want that revenue, theyre willing to do almost anything for it. Should this make us nervous about the icnyc . Because, you know, you august about integrateing legacy Computer Systems. We dont though what the problem is. P now were getting more consolidation which means distant systems overlapping. I dont know. By the way the traders talk about the weakest living. You realize the nasdaq was brought down by squirrels, hand the they died, i think it was twice, 94 and 87. Oh the squirrels. Im sure they were pup set they punished the nasdaq. The squirrel was playing possum . We will leave it there. There is no squirrels here. Looking around. You dont see any ger be els, do you . I got the joke. Trust me, so did the audience. You know what im talking about. I do, i will not mention any actors names, either. See you, guys. Coming up, the squawk reserve is in session. St. Louis fed jim bullard will join us live from jackson hole. We will get the taper time line. Later this hour, mohammed allerian on the fed the flat freeze, a lot more. All that coming up. Here at fidelity, we give you the most Free Research reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Right now, 7 years of music is being streamed. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. Welcome back to squawk box. This show would have been huge if nothing had happened yesterday because of who steve is booked for us out at jackson hole at the feds annual retreat, joining us again now Steve Liesman has a special dpeft we will be able talk to. I dont think dennis fed president , he did not have an ifb . No. Yeah. Jim is happy to talk to you, especially about the cardinals and the reds, joe. I think hes anxious to have that discussion. Thats the one division where theyre going to be there. I dont know whether it will be the pirates, red, theyre all having some of the best records in the league and theyre all in the same division. Anyway, come on. Of course, nasdaq and the fed and baseball being the three most important things going on right now. I am joined with st. Louis fed jim bullard. If we talk long enough, those mountains will come up. They will come up. So lets talk about policy and the outlook. You have given recent speeches in my mind cast doubt on whether or not you think beginning to taper is the right move for the Federal Reserve. I dont think we have to be in any hurry, inflation is running low. We got mixed data on the economy. So you know, id be cautious, you know, i wouldnt want to prejudge the meeting. But i think we want for the take our time, assess whats going on an before we make a move here. Tell us what the data is telling you right now about where the economy is and where its going. I think on the question of whether the labor market is better than it was last 84 at this time i think it is. I think the jobs growth has been better generally over the last year. Weve got one more report coming before the meeting. Unemployment, i think, is lower, ticked lower. So in our main indicators of the labor market definitely looks better. Gdp growth kind of weak, although, we were talking yesterday about the Second Quarter gdp number. We can talk about that a little bit. Inflation has been, real low, i wanted to see some evidence that it was at least coming back fourth quarter, but i think we can afford to be very deliberate in our decisionmaking here. Lets talk about how you believe the market is going to react to a taper. Is that something that makes it so that you really want proof in that is it your concern the market will price in the end point as soon as you begin . Markets always pull things forward. You start going in one direction. They start projecting out an entire path. We understand that. And i think thats an important consideration in this. But, you know, the signal that we send might, you know, change the expectation about how fast that would occur or how slow that would occurment so i think its a subtle matter. The Federal Reserve has tried to convince markets that reducing the amount of quantitative easing is a separate issue from tightening the policy rate or removeing the policy rate. Do you think you have been successful with that . I think theyre tied together in the minds of the market and a lot of you guys have talked to a lot of people on the market. They dont boy it for a second . They dont buy it. I think in our heads as policymakers, we got the policy rate and Forward Guidance about the policy rate and thats kind of one aspect of policy. Then we came in qe. So its separate in our heads. But i think marks want to look at the entire picture of accommodation, what does it look like and theyre evaluating that as a whole. And, also, we told markets for two years, you know, this works. Were pushing down longer term yields. You pull back, rates are going to back up some. So i think, you know, in that sense, i think its been very clear during the summer that this lowbased approach is, you know, exactly, you know, what the fed said it was. Joe kernen back at headquarters has a question. Steve, looking back, wove asked you the same question so many times, you probably are getting really good, anyway, thats one of the advantages, but all the qe, do you think in terms of percentages more of an evenlg on the underlying economy or more of an effect on just helping the asset prices in the stockmarket or an equal effect in both, some or both . What do you think . Yeah. I know wee have talked about this a lot, but i think in terms of sort of traditional Financial Market easing effects coming from policy, i think qe has been very successful and then when you try to make the jump from that to the real economy, thats actually a hard question that gets a lot of papers like it encompasses here like jackson hole, you know, what exactly are those ties . What exactly is that mapping between what is going on in Financial Markets, whats going on in the real economy. You always got this counter factual lurking in the background, if you hadnt done it, maybe things would be worse. I think there are a lot of hard things to get to link the effects. As far as the Financial Market effects, absolutely classic monetary easing. We will have mohammed elerian on who for a couple of years has scratched his head about how well the stockmarket has done and hes explained it to us the fed put a wedge in between underlying economics and where the stockmarket is. So what i was getting at with asking you that question is, has if economy now improved enough to where, you know, you are no longer pulling out a wedge and you are actually the market where it is at 15,000 is actually now supported by the underlying economy. Well, on the question of the market over the equity market over the last five years, a simple thing that you could say is, everything went down in the real economy and in the equity market in 20082009, now it has all come back together. The real economy is, you know, much better than it was. There is, you know, some dimensions are not back, but many dimensions are. And so you are seeing equity markets improve. The other thing about equities, you know, these guys are right sizing their businesses for the demand thats out there. So its all about profits and theyre thinking about how can i get the most profits given the amount of demand that i have. So i think american, the american corporate sector has been very good about that over the last five years. If the demand wasnt there, they made sure they made the decisions, the right decisions for their company. It would be nice if both of those areas could survive on their own is the point i was making, if you take the training wheels off both and not expect both to sink. To what degree you watching whats going on in places like indonesia, brazil, india, which are dealing with the ripple effects of monetary policy. I know you make u. S. Monetary policy. Do you Pay Attention at all to the disruptions and locations in the overseas markets as a result . Well, we certainly look at all the data thats coming in. This is american monetary policy. With reconcerned about our gdp, our labor markets, our inflation rates, but, obviously, were connected with the rest of the world, so we have to look at the whole picture. You know, these capital flows, you know were a problem, according to emerging market authorities, during the entrance into qe2, especially, i think, now were getting sort of the reverse effect here, where theres talk about tapering, but i mean i cant really give better advice to these countries other than they have their own independent monetary policies and their own Exchange Rates to manage ago ens the dollar. Jim, lets talk about the succession of the Federal Reserve. Can you remember Something Like this . Is this the way that the new leadership is always chosen be i the president . Or is there something unusual about this particular goaround . Well, there arent very many examples in history. I think what has often happened in the post war era is the chairman gets reappointed i think because this is over decades because the white house sort of makes a judgment, they dont want to rock the boat. The guy is doing a good job. So there have only been two in my, sense i have been an economist, the 87 and bernanke. Theyre very unique events. I wouldnt try to generalize them. Not enough data. Does it matter who is close chosen . Do you have a preference . No, i think weve got, you know, certainly the two that are mentioned a lot are great economists i think would do the zwrob. You dont want to give me your preference here . No, i think theyd both be very good. Jim, thanks for joining us. Jim bullard the st. Louis fed president. We are back to joe or michelle. I guess its back to me, steve. Now i need to interview you. So where are you . You are like a fed guy. I have to interview you. Well we should talk about it. Dennis lock is hart was a little more hawkish. I think, we just heard it. Reflects the split i read in the minutes. I got a lot more talking to do. We have John Williams from san francisco. There sa a whole bunch of guys inside, i will come away with a definitive opinion on whats going to happen. Every time i say John Williams, i this i we should play star wars or indiana jones. A quick thing like we do with others. Thanks. Thanks. Jim, good luck with the cardinals. I cant believe pittsburgh . Its too bad the rids are twoandahalf back. Its quite a ways. I dont know if you can make it. Were going to make it whether you win the division or not. The 2nd place team will be the wild card. You know that. The 3rd placed team may miss the playoffs. You are in 3rd now. 3rd . Were we 3rd now . Pirates, charms, reds. Reds won yesterday. All right. We got to go. Coming up, the guy just talked about mohammed elerian, the new edge wedge, the new normal. You equity suckers depending on the tape. Who is calling each other . We will talk about a lot of this stuff. Well talk about the glitch with mohammed, maybe more about the fed. Also emerging markets. He knowsant that. Then we get jim cramer. Hopefully hes still mad. Hes so mad on twitter. Holy smokes. He was just tweeting. Oh. Vo two years of grad school. 20 years with the company. Thousands of presentations. And one hard earned partnership. It took a lot of work to get this far. So now im supposed to take a back seat when it comes to my investments . Theres zero chance of that happening. Avo when you work with a schwab financial consultant, youll get the guidance you need with the control you want. Talk to us today. Starts with freshlymade pasta, and 100 real cheddar cheese. But what makes Stouffers Mac n cheese best of all. That moment you enjoy it at home. Stouffers. Made with care for you or your family. Welcome back to squawk box. Aeropostale under pressure after they reported a wider than expected loss for the quarter and forecast another loss for the third quarter. Also in premarket trading operator pandora Quarterly Earnings beat estimates. Pandora is facing increasing expenses to both buy music and to increase the size of its sales force. One of this mornings winners, though, computeraided Design Software company auto desk. 3 cents above estimates. The rise comes even though auto desk is forecasting Current Quarter below street estimates. And in squawk boos news, jack daniels maker is building a new 100 million distillery at its tennessee plant to meet growing demand for whis chicago it will help produce production 15 to 20 . Global sales was 9 last year. Its the first all new distillery for the Company Since prohibition. The move comes two months after brown foreman announced the expansion at its woodward bour been distillery in kentucky. Coming up, dont move, more on the fallout on yesterdays flash freeze. How the glitch could influence the next round of high profile ipos. Think. Good news for the nyse. Well be right back. We provide the exact individualization that your body needs. This labor day, dont invest in a mattress until you visit a sleep number store. Once you experience it, theres no going back. Oh, yeah at our biggest sale of the year, every bed is on sale. Queen mattresses now start at just 599. And save an incredible 40 on our limited edition memory Foam Mattress sets. Only at a sleep number store. Sleep number. Comfort individualized. A talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . Welcome back to squawk box. We are asking how will yesterdays flash freeze impact the battle for the next round of high profile internet ipos. We are joined with me. Good morning, julia. Good morning, andrew, in the wang of facebooks debacle, the New York Stock Exchange has been ruling the next round of ipos. It seems to be working. Since facebooks ipo a year ago, the nasdaq handled 15 tech ipos and raised 1. 35 billion. The New York Stock Exchange has 21 ipos raising more than twice that 3. 35 billion. Ipo Research Firm Renaissance Capital tells us quote there were clear signs the New York Stock Exchange is gaining shares and the tech ipo rate prefacebook ipo which likely accelerated the market share shift. Nasdaq fumbled one of the highest profiles ever. It was so damaging, the ceos that it essentially gave the New York Stock Exchange ammunition for future pitches. The trading halt that we saw yesterday will likely do the same. Heres what nasdaqs ceo bob greifeld told andrew how it would impact the ipo business going forward. I think people respect, were getting the comments today we did handle this process in a proper way. We want to get to perfection. We want to get to 100 reliability and were Getting Better at that all the time. You see instances of trade problems in the industry has actually gone down. You cant quite get that from the press. Louing at daybyday, week by week, month by month in in fragmented world the world is Getting Better. I think people recognize that. Still this year, the exchange is happeninger hoo, capital rates from ipos was four times any other u. S. Marketplace with the record 64 of new tech offering, accounting for vague capital raised in the sector. One already tech Company Oracle transferred from the nasdaqs, if New York Stock Exchange in july, that was the largest market transfer ever and now all eyes are on a list of high profile Internet Companies expected to go public in the next year, twitter, box, drop box maybe even uber will be watching to see what they decide with the new data. Michelle. All right. Thank you so much, julia. Lets get more insight into yesterdays trading glitch to find out if there will have an impact on the live blah. Bottom line, ability to get ipos, everything julia was just talking about. Joining us is ex Equity Analyst gaston. Good to see you, michelle. It seems obvious and intuitive after facebook and after this, its tougher for the nasdaq to get ipos. Am i wrong . You know, i think on the short term its possible they might be on the ropes a little bit. Its possible as the new york conspon dense says they might have an edge, i think nasdaq over the longer term, we tend to focus on morningstar, nasdaq is a fierce competitor for quite a while. For many years its didnt a duopoly situation in the United Nations and some market share might shift here and there in the near term, over the longer term, i fully expect nasdaq to remain a strong rival for these ipos. What if it was a real competition an not duo oly. Last year it looked like we might get a taste when it was about to go public on its own exchange, right . There was thought that there was some thought that that might make a serious listings business. So far, that really hasnt taken off. You know, probably in part because bats, frankly, are going to botch its own iposs a another technical problems weve seen. So far it has a duopoly in the u. S. Talk about the revenue stream dr. J has been bringing up within it comes to this particular tape that failed. The nasdaq gets a lot of ref few from whats the vernacular here . Revenue from the live quotes, gaston, is what theyre talking about. They share that are certain High Frequency trading first that bring prints if you will to their exchange. Yeah. Thats right. I dont have the precise numbers in front of me. Id say its certainly a time when revenue exchanges in general, especially changes ha have significant equities business has been challenged. Its certainly not a good moment to put revenue stream at peril of being diminished or anything like that. Would they expla enwhy it would be more likely to give that information to folks than the rest of us . Pause they pay them money . You know, potentially, perhaps. Like i said, i dont have the details in front of me. I do think as nasdaq goes forward, they have every way to fix this mistake to get it right. I think after this situation last year with facebook, management has got to be very, very focused on making sure this thing does not reoccur. Gaston, good to see you. Thank you for joining us. Coming up, the fed tapering, what happened yesterday, we are calling it the flash freeze, a lot more, with the squawk market master. Mohammed elerian will join us next. Then jim cramer on the importance of a backup plan for the trading platforms. They got fired up with our interview with bob greifeld tweeting, im so darned steamed about this. I dont like to be rolled. I have been in this business much longer than greifeld. I am just furious. [ female announcer ] Research Suggests cell health plays a key role throughout our lives. One a day womens 50 is a complete multivitamin. The markets were frozen on the nasdaq by an estimate of 5. 7 dollars. Joining us from newport beach, mohammed elerian, pimco ceo, in terms of sentiment, if we want to draw a big point a think a big point, i want to get to the fed. I want to ask you a question about egypt. Do you have comments on whether this is another sort of, we have been calling it a blacky for Retail Investors in the security industry. It seems like theyre not necessarily always getting a fair shake or at lowest not being treated as equally as some of the big players. You have had a great discussion all morning. You got jim coming up. I would a confirm thats another black eye and say two more things. Up with, it has shown how horrible the Crisis Management side is, xhun indication was horrid. There is no backup. So we have to focus on the Crisis Management side and the second, this is well beyond nasdaq. Remember, there is a general migration going on across markets to strangers because strangers are viewed as reducing the systemic risk. I allow netting. They allow all sorts of things. So its really important to draw some lessons on the crisis prevention side. So i think this is bigger tan just a black eye and a nasdaq issue. This is really important into questioning whether the conventional wisdom the exchanges are fine and we can migrate everything the exchanges should be looked at. What did you say, mohammed, well, its easy for you guys to say in bonds, where bond and still traded over the phones, high yield, et cetera, you call people up, you necessarily dont want to go to the exchange, you get a bigger spread. The biggest spread is taken by the investment banks, not by our clients so we have been pushing towards going to an exchange. The banks have been resisting because theyd rather keep this high market there. For us, its very important. It allows netting. It allows better counterparty risks. So we have been supportive of this Movement Towards the exchange. Thats why we have been looking quite closely on what happened on the nasdaq yesterday. Mohammed, you probably, i know you watch a lot. Hopefully, you watch us even though you might appear on competitor. Hopefully, you are only watching us most of the times. You heard me talk about your wedge thing, yoen i dont mean with bleu cheese, you have said for a while that the fed put a wedge in between economic fundamentals for the economy and where the stockmarket was. Now the wedge is, even if they talk about taking out some day, part of it, the market already discounts that quickly. Do you think now the underlying economy has caught up close enough to where the stockmarket is so that removeing that wedge wont be a huge deal or are you worried that this is going to really cause a big selloff in the market . So, what have we heard, joe . Especially since we last spoke. One is that the fed is inclined to reduce the wedge even though they are still worried about growth even though they acknowledge we dont have an inflation problem. So they are inclined to reduce it because they are worried about the Collateral Damage of using the wedge for such a prolonged period and they should. Itself the first thing we have learned. The second thing we have learned is that theyre going to lockoko compensate that one way or the other. So have you noticed, we have the Forward Guidance language. So they want to somehow find a bit of a institute tosubstitute they want to reduce. So i think the economy is not strong enough. I think the studies out of the fed confirm that the impact of qe have been much more on the Financial Assets than on the real economy, much more than. Okay. And, therefore, the fed finds itself deep in a way the second or third best and whatever they do in september, they are going to be criticized. The article in the journal an op ed piece, the emerging markets, this is tough love for them. If you can just talk about tapering in the future, that causes a bunch of money to move out of the emerging market, then maybe they ought to just work on deserving that fast money coming there and on the fundamentals of their structural things and we shouldnt really be shedding a tear will is some dislocation in the emerging markets, because maybe they ran up too much anyway on this easy money. We should for one reason, joe. I think its important on the standard, we have been selling a lot on the emerging market. If you look at profitability, revenues, a growing and important part comes from the emerging world. We have to care, because they are important clients. Now, they are very frustrated because on the way up, they kept on complaining saying we dont want august capital pushed to us. We cant cope with it. Our systems doesnt allow us to cope with it well. Now, the see it all coming out and there is two risks that we at pimco are locking at very carefully, one is will bad technic also, thats what it is contaminate the fundamental also and, two, is will the flight of the tactic alimony contaminate the dedicated money . The good news for investor, joe, is were starting already to see only pockets of opportunities because through investor reaction hasnt been differentiated enough. Mohammed, to what degree is the situation that you are watching unfold in the emerging markets, could it will similar to the late 90s or have things changed enough since them in terms of Foreign Exchange rates that we dont sister to worry about that systemic sthags we saw in a similar situation back then . For most of the emerging economies, michelle, its the latter. Very strong reserves, so they have cushions, better policies and flexible Exchange Rates. So they have much more Self Insurance than they did in the 90s. Not for all, but for most, they do. Mohammed, if you were advising the president , which way would you lean, towards the military in egypt or towards the morsi supporters and the brotherhood . Where would you . I mean, you cant, obviously, go one way or the other full force, but request you throw your lot in with people that are doing things like the government is doing right now . So i would say, you know, everybody has to lean towards the lipp liberal democracy in getting there as soon as possible, which means an inclusive political dialogue, which is not happening, in terms of the there is a spectrum where you are totally irrelevant to where you can dictate events. In the middle, you can inform or influence, the u. S. Today because of whats happening in egypt is somewhere towards informed, right . We have to realize that we are for the where near influenced let alone dictate, therefore, we have to obtain optionality and assist on whats really matters for this country, which is the empower. Of the grass roots, the empower. Of the individual. Is what development is about and that is what the ref lougs back in january, 2011, was trying to do. Yeah, its tough. Off in syria. You know, i read about the rebels, you read about the guys. It must be heart breaking for you, mohammed. Its very. But with the possibility of a really great ending. Maybe, it may take a couple of years, but, i mean, we can be hope. Right . You always say revolution is a process, not an event . Right. The most difficult thing, michelle, as to repivot to building across the future. Pivot is really hard, especially in egypt when you dont have institutions and you do enhave credible leaders like nelson mandela. Okay. Mohammed, thank you. We could have put should bring back. Have him on to talk about the eamericaing markets . Joe, if i was 2 1 2 games out of first place. Third place. I would be pushing it like crazy. Because were in third place. I just looked. Can you believe that . Third place with a record that good. Jump on board. Weve left the lights on in cincinnati for you, mohammed. I must tell you, between the three, i hope the pirates get in. And then one other. Pirates . All right. All right. Thanks, mohammed. Well see you later. In football and baseball, he needs to be open minded. The jets and who else . Thats what i i kid him. Came to new york, got to pick two teams. He picked bonds and stocks. He picked the jets and the mets. You cant be good at everything. Talk about contrarian. Coming up, jim cramer getting fired up during our interview with nasdaq ceo. He tweeted this. Why would we find no pro who agrees with greifeld is saying about the pros liked how this was handled . He can he say this . Were coming back in a moment. I put in the hours and built a strong reputation in the industry. I set goals and worked hard to meet them. Ive made my success happen. So when it comes to my investments, im supposed to just hand it over to a broker and back away . Thats not gonna happen. Avo when you work with a schwab financial consultant, youll get the guidance you need with the control you want. Talk to us today. And this is my home team. This is my large lecture hall. This is my professor. And also my coach. This is my booster club. This is the guy whos graduating ready for a great career in technology. [ male announcer ] in 2012, 90 of Devry University grads actively seeking employment had careers in their field in 6 months. Join the 90 . Learn how at devry. Edu. Yep. Welcome back to squawk box. Lets get down to the New York Stock Exchange. Jim cramer joins us now. Jim, it looked like you were going to jump through the tv based on your tweets. What did you think about what bob had to say there . I think its fair that people have more information. Id like to know, again, under what circumstances is it not right to communicate with the public if you think youre protecting retail, which is what bob said. If its not his job, maybe it should be the s. E. C. s job. Its got to be somebodys job to tell people, look, heres whats happening. The prices may not be right. As Bertha Coombs said so much of the etfs are not the prices. How does that help retail . What should he have done . What was the right answer this morning. I think its certainly reasonable to come out and say, look, we have really good ideas. They said they did. About whats wrong. Weve got to be very careful if youre trading etfs, once again, thats not his job. But kind of say, listen, were working on it. Not just issue these kind of vague, we spoke to this guy, we spoke to that guy kind of things that we were stuck with. Bob said it was a open line to many traders. I was on the desk. We were frantically trying to come up with traders that knew something. We have sources at cnbc. With couldnt find anyone who really knew what was happening. Who were they talking to . Why do we have all of these exchanges andrew, why do we have all of these exchanges if we cannot use them as backup . Whats that all about . Jim, you brought up a good point. I was wondering, was he truthful when he said they were really communicating . A, one question. And b, if they were communicating with some people but not the rest of the public, that is infuriating, isnt it . Im not going to question his truth. Ive known bob for a long time. Im sure hes giving what he has to say about it from the stwaith straight way. I disagree with what he is doing. I disagree with the notion that he didnt need to tell us we have a studio you guys are coming from. Why not come down. Have a nasdaq spokesman just say, listen, there is a problem with the feed because they said they knew it was the feed. Give us some information. Id like to know how the etfs had prices and how the High Frequency traders were able to trade etfs. Again, how could, if youre protecting retail all retail needs is the big and ask. They dont need the big robust system. Bob, great that they came on. I just wasnt happy with the answers. I think ewe need to know a lot more. The sec should say, guys, tell us whats going on. Pick up the phone and call our editor in chief. Heres the story, guys. We dont like how you have to keep speculating on what happened. We got to run. Jim, thank you for your perspective. Thank you. Always love reading the tweets. Good job, andrew. Coming up, guest host this morning, were going to give him the next word when squawk box returns. The most Free Research reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Starts with freshlymade pasta, and 100 real cheddar cheese. But what makes Stouffers Mac n cheese best of all. That moment you enjoy it at home. Stouffers. Made with care for you or your family. My mantra . Always go the extra mile. To treat my low testosterone, i did my research. My doctor and i went with axiron, the only underarm low t treatment. Axiron can restore t levels to normal in about 2 weeks in most men. Axiron is not for use in women or anyone younger than 18 or men with prostate or Breast Cancer. Women, especially those who are or who may become pregnant and children should avoid contact where axiron is applied as unexpected signs of puberty in children or changes in body hair or increased acne in women may occur. Report these symptoms to your doctor. Tell your doctor about all medical conditions and medications. Serious side effects could include increased risk of prostate cancer; worsening prostate symptoms; decreased sperm count; ankle, feet or body swelling; enlarged or painful breasts; problems breathing while sleeping; and blood clots in the legs. Common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. Ask your doctor about the only underarm low t treatment, axiron. We have ten seconds. So thank you, sglon its my pleasure. Great to be with you, joe and michelle. Watch you tonight. Were watching it. Or at noon. Love your brother. Say hi to him. I will. Join us on monday. Squawk on the street is next. Thanks, michelle. Thank you. Well see you next week. Good friday morning. Welcome to squawk on the street. Im Carl Quintanilla with. Simon is at the nasdaq which is obviously front page news all around the country this morning. More from simon in a minute. Futures look tape here. We have earnings from pandora and gap to do. Of course, we start with the nasdaq. The exchange responding for the first time this morning on cnbc to yesterdays threehour shutdown