Exchanges passed two recent tests of their ability to handle anexplosion of trading. They face a third and potentially greaterchallenge today, when the Federal Reserve decides whether to raise interest rates for thefirst time in nine years.

On Aug. 24, as anxiety engulfed markets worldwide and promptedone of the worst days for stocks since the aftermath of the 2008financial crisis, no exchanges reported malfunctions. U.S. stockexchanges weathered a surge in volume to a four-year high of 14.1billion shares. Last year, a wild session for Treasuries and otherassets prompted no obvious malfunctions on Oct. 15, when 11.9billion U.S. shares traded.

Technical errors at prominent financial markets in recentyears have eroded public confidence and prompted regulators todemand they do better. With the Fed's decision likely to unleashanother tsunami of volume, exchanges face another big test.

Intercontinental Exchange Inc. (ICE), which runs huge futuresmarkets as well as the New York Stock Exchange, says it isready.

“Our markets exist to help manage risk and price volatility, andwe have in place a robust set of protections to manage throughspikes in prices and volumes every day,” Brookly McLaughlin, aspokeswoman for ICE, said in an emailed statement.

One of ICE's biggest competitors, CME Group Inc., said its“systems are designed to manage potential volatility in themarkets,” Michael Shore, a CME spokesman, said in an email.

“We are following our normal protocols and procedures,” JosephChristinat, a Nasdaq Inc. spokesman, said by phone.

In this increasingly automated era of trading, computerbreakdowns can halt the world's biggest financial markets,preventing investors from placing trades. Nasdaq's three-hourmalfunction in August 2013 froze thousands of stocks, while a CMEdisruption in August 2014 prevented buying and selling of contractstied to major stock indexes, Treasuries, oil, and gold. The NYSE'sbreakdown two months ago was less problematic than it could havebeen because traders were able to route transactions elsewhere.

Although some of the biggest malfunctions have been in America,exchanges elsewhere have broken down, too. Eurex, one of theworld's biggest futures markets, had to delay the start of futuresand options trading by more than two hours in July. Russia'sprimary exchange was down for two hours last week.

Exchanges don't have to break down for there to be a problem. OnAug. 24, even though markets didn't experience malfunctions, someprice swings were unusually wide. General Electric Co. and JPMorganChase & Co. dropped as much as 21 percent that day, theirlargest intraday losses since 1987 and 2009, respectively. And someexchange-traded funds also had large, unexplained fluctuations thattemporarily untethered them from the prices of their underlyingstocks.

Odds that the Fed will boost rates today are 30 percent,according to trading in futures contracts tied to the centralbank's key benchmark. The Fed hasn't increased rates since 2006 andhas held them near zero since the aftermath of the 2008 globalfinancial crisis.

U.S. exchanges and some of the larger dark pools face a November3 deadline to comply with rules that require them to plan fortechnology disruptions that could interrupt trading, clearing andsettlement, order routing, and market data. Stress tests will berequired to ensure that trading venues can cope with surges inorders or extreme volatility.

Exchanges will have to inform the Securities and ExchangeCommission (SEC) of significant breakdowns within 24 hours andissue a written explanation of why the outage happened. The rulesshield executives from liability if they can show that theyfollowed their internal policies.

“I don't anticipate seeing any failures or disruptions, butthese things happen,” Andy Nybo, a partner at capital marketsresearch and consulting firm Tabb Group LLC, said of the optionsexchanges that he covers. “They're always ready for a busy day.”With 12 U.S. markets for trading stock options, if there's aproblem at one, orders and other activities can be routed toanother venue, Nybo said.

–With assistance from Dave Michaels in Washington.

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