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Notice that when the big boys lose so much money because of their own computers they'll actually cancel the stock trades that happened today.

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May 06, 2010 – Comments (4)

Electronic Trading to Blame for Plunge, NYSE Says

 

By Chris Nagi and Matt Miller

May 6 (Bloomberg) -- Computerized trades sent to electronic networks turned an orderly stock market decline into a rout today, according to Larry Leibowitz, the chief operating officer of NYSE Euronext.

While the first half of the Dow Jones Industrial Average’s 998.5-point plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.

“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.”

The selloff briefly erased more than $1 trillion in market value as the Dow average tumbled 9.2 percent, its biggest intraday percentage loss since 1987, before paring the drop.

More than 29.4 billion shares changed hands on all U.S. venues today, including traditional exchanges such as the NYSE, rivals Bats Global Markets Inc. in Kansas City and Jersey City, New Jersey-based Direct Edge, and other electronic platforms. The level compares with 2.58 billion traded on the NYSE, making it the biggest gap in more than three years, data compiled by Bloomberg show.

More Venues

Increasing automation and competition have reduced the Big Board and Nasdaq’s volume in securities they list from as much as 80 percent in the last decade. Now, two-thirds of trading in their companies takes place off their networks because orders are dispersed across dozens of competing venues.

Nasdaq OMX Group Inc. said it will cancel stock trades that were more than 60 percent above or below prices at 2:40 p.m. New York time, just before U.S. equities plummeted. The New York-based firm, which investigated trades between 2:40 p.m. and 3 p.m., said it will provide a list of stocks affected and the prices at which the trades will be canceled.

“The fact that it snapped back so quickly made it clear that it was an aberration,” Leibowitz said. “When a large order or series of orders comes into electronic markets, they don’t really have any way to recognize either that they’re a mistake or to slow them to down to attract the proper liquidity on the other side. And so the electronic markets actually traded all the way through the slower New York Stock Exchange markets where we were trying to slow down trading.”

To contact the reporters on this story: Chris Nagi in New York at chrisnagi@bloomberg.net; Matt Miller in New York at mtmiller@bloomberg.net

Last Updated: May 6, 2010 20:50 EDT

4 Comments – Post Your Own

#1) On May 06, 2010 at 11:04 PM, ralphmachio (24.88) wrote:

No, they won't.

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#2) On May 06, 2010 at 11:27 PM, topsecret10 (< 20) wrote:

Yes they will....            SOME TRADES TO BE CANCELED

Lending credence to the sense that the sell-off was exacerbated by technical errors, the Nasdaq stock exchange and NYSE-Arca said they would cancel certain trades that happened during the period in question.

But only trades in stocks that moved 60 percent up or down were covered by the cancellations, leaving some investors with potentially major losses on stocks such as Apple Inc (AAPL.O) and Procter & Gamble Co, which suffered lesser, but still significant, declines.

The U.S. Securities and Exchange Commission and Commodity Futures Trading Commission said they were reviewing the unusual activity and working with the exchanges to protect investors.

Citigroup Inc (C.N) said it was investigating a rumor that one of its traders entered the trade, a spokesman for the bank said on Thursday. Citigroup, the third-largest U.S. bank, said it has no evidence that an erroneous trade has been made.

Several market participants cited speculation that a trader at Citigroup had erroneously placed an order for at least $16 billion in E-Mini contracts -- stock market index futures contracts that trade on the Chicago Mercantile Exchange's Globex trading platform.

But a source familiar with the situation said Citigroup had traded a total of just $9 billion of the E-Mini contracts, adding that that amounted to less than 3 percent of the $319 billion traded on the E-Mini on Thursday.

CME said the bank's trades in CME index futures appeared normal.       http://www.reuters.com/article/idUSN0624451020100507

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#3) On May 06, 2010 at 11:36 PM, topsecret10 (< 20) wrote:

P&G Trades Won't Stand: NYSE CEOPublished: Thursday, 6 May 2010 | 5:48 PM ET The CEO of the New York Stock Exchange told CNBC Thursday that some of Thursday's trades in Procter & Gamble "will get taken off the table."

P&G [PG  60.75    -1.41  (-2.27%)   ] , which dropped about $20 in a minute, traded as low as $39.37 at one point. "That $39 trade will not stand," said Duncan Niederauer. "I think it was just a few offers and there weren't many bids."

"This is the market structure we all signed up for," Niedermayer said. "Today we had to slow the market down. We also have the right to slow down the market as appropriate," he added.

 

Trader Error May Have Triggered SelloffBiggest Market Drops in HistoryDebt Crisis on Verge of 'Going Global': El-ErianMore Economic News

 

"I don't think you are looking for one bank that traded the wrong number of shares," Niederauer said. "Electronic markets have a different business model."

The chief executive also had a prediction for Friday's market open: It's going to be "fairly ugly tomorow morning."

© 2010 CNBC.com

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#4) On May 07, 2010 at 2:09 AM, ralphmachio (24.88) wrote:

So keeping FAZ overnight was not such a bad idea? 

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