Market Recap: Glitches, Errors, & Mystery Trades Send Stocks Lower
- Posted on August 1, 2012 at 5:39pm by
Becket Adams
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Markets closed down today:
▼ Dow: -0.29 percent
▼ Nasdaq: -0.66 percent
▼ S&P: -0.30 percent
Precious metals:
▼ Gold: down -0.86 percent to $1,601.35 an ounce
▼ Silver: down -2.14 percent to settle at $27.41
Commodities:
▲ Oil: +1.50 percent
Markets closed down because:
A “technical glitch” on the stock market caused sharp swings in dozens of stocks early Wednesday, causing confusion and disarray in the first hour of trading.
It was the latest breakdown in the increasingly complicated electronic systems that run stock trading, which have been showing signs of strain as more traders and big investment firms use powerful computers to carry out trades in mere fractions of a second.
Coming less than three months after a snafu tarnished the debut of Facebook, the latest bug on Wall Street threatens to further erode investors’ confidence in U.S. financial markets, experts say.
The problems began when dozens of stocks started moving up and down by wide margins for no apparent reason. Abercrombie & Fitch jumped 9 percent within minutes, hitting $36.75 after closing the night before at $33.80. Harley-Davidson suddenly 12 percent, to $37.84 from $43.23. Wizzard Software shot up above $14 after closing the night before at $3.50, according to data compiled by FactSet.
The culprit was Knight Capital Group. Knight, which takes stock trading orders from big investors and routes them to exchanges, said in a statement that a “technology issue” had occurred that affected the routing of about 140 stocks to the New York Stock Exchange. Later in the day, NYSE said it was canceling faulty trades in six smaller stocks, including Wizzard.
Knight told its clients to send their orders away from its system and said it was reviewing the issue. The episode was an embarrassment for Knight’s CEO Thomas Joyce, who was one of the biggest critics of the Nasdaq stock market for the way it handled Facebook’s initial public offering.
Knight’s own stock plunged $3.39, or 33 percent, to $6.94 on Wednesday.
Though Knight didn’t provide details on what happened, much of these glitches stem from issues related to the computers and algorithms that power the world of high-frequency trading, where millions of trades are conducted in nanoseconds. Most of the volume of stock trading comes from such computers. Because machines conduct these trades, the propensity of malfunctions is high, since humans can’t put a stop to these trades until it is too late, or the damage is already done.
Such glitches can hurt investors, especially those that may have had placed automatic orders with their brokers to sell stocks that hit a certain price.
The Securities and Exchange Commission was involved in the looking into the matter throughout the day, spokesman Kevin Callahan said in a statement. “As is our practice, we are closely monitoring the situation and in continuous contact with the NYSE and other market participants,” Callahan said.
The disruptions occurred, ironically, on the same day that the Securities & Exchange Commission published a final rule aimed at preventing trading disruptions like the May 2010 “flash crash.” The new rule establishes a single, consolidated record of all the trades on a given day.
The Associated Press contributed to this report.
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Arshloch
Posted on August 2, 2012 at 3:16pmNo mystery, l‘il georgie schwartz’ at the helm.
Report Post »sbenard
Posted on August 2, 2012 at 6:28amAbout 80% of stock trading volume on the major exchanges is now attributable to what are termed “high frequency trading” algorithms. There are a handful of firms whose HFT algos make tens of millions per day for their firms. These firms have purchased buildings surrounding the exchanges and their high speed computers read incoming orders, which they then front-run and place orders in front of those of people on Main St. As they sense the incoming orders, they push these millions of orders in front of them, placing orders in nanoseconds. The exchanges then give the algo firms kickbacks on those orders for helping to provide “liquidity” to the markets. They can lose money on the trades and still make money from the kickbacks. This should be illegal! Congress, are you there?
When the Fed’s stock market bubble finally pops, there will be blood on Wall St as those algos go nuts selling everything in sight! What Greenspan called “irrational exuberance” in stocks, Bubbles Bernanke calls “the wealth effect”, which he aggressively promotes and then boasts about in op eds in the Wall St Journal! Bernanke honestly sees his money printing scheme as creating “wealth”! Is it any wonder that a leading finance website refers to “The Bernank” as “The Chairsatan”?
Be prepared!
Report Post »smokeysmoke
Posted on August 2, 2012 at 8:32amnot to mention that a computer algorithm cannot think like a human… and HAS MADE MISTAKES BEFORE… remember when PROCTER AND GAMBLE traded to 1 penny and the computer algos kept selling it….. COMPUTERS DO NOT KNOW VALUE…. IT IS A FORM OF TRADING THAT IS JUST MENT TO FRONT RUN ORDERS, WHICH ADDS HIGH VOLUME, BUT DISCOURGES LOCALS AND SMALL TIME TRADERS FROM PARTICIPATING….
TRADING SHOULD BE DONE BY HUMANS ON CARDS, AND HUMANS ON COMPUTER…. NOT HUMANS WRITING A COMPUTER PROGRAM WHICH IS JUST MENT TO FRONT RUN ORDERS AND TAKE QUARTER PENNIES OUT OF TRADES TO MAKE A PROFIT…
THESE ALGO TRADERS ARE DRIVING AWAY LEGITIMATE TRADE OUT OF THE MARKETS… THUS MAKING THEM MORE VOLITILE AND DANGEROUS TO TRADE…
Report Post »Silversmith
Posted on August 2, 2012 at 9:15amThis is something that needs to be amended. Our technology is surpassing our ethics here. These firms are, in effect, syphoning money out of the markets as regular folks cannot possibly keep up with the speed these algorithmic trades set. And what these high speed trading companies are selling is really legalized theft. The market should provide the same access for everyone from corporations to the little guy. Trades should only be allowed at a given speed (say one trade per second) and information disseminated at the same time to inform those trades. Our tech is challenging our ethics – and so far, out ethics ( and regular stock traders ) are losing.
Silversmith
Report Post »smokeysmoke
Posted on August 2, 2012 at 3:14pmsilversmith… your are totally correct, but 1 trade a second is wrong… you should be required to have humans enter the order… but if that is 1000 or 1 that should not be dependent on time, becuase sometimes you want to move a big inventory, and this should not be limited by mundane rules… YOU ARE 100% correct saying that we need a level playing field for EVERYONE… slowing the HFT and modernizing spread engines for advance traders and spreaders gives everyone better and more accurate prices, and demanding that humans are sitting at the HFT computers to watch the inventory being traded would be a fair rule…. these are a few simple things that would MODERNIZE THE COMPUTER TRADING MARKET
Report Post »TRK
Posted on August 1, 2012 at 11:16pmWas Wayne Enterprises involved in any of the strange trades? Did anyone notice an extremely large man wearing a breathing apparatus hanging around the New York Stock Exchange before being chased away by Batman?
Report Post »Rightwingjoe
Posted on August 1, 2012 at 9:24pmAnother reason to trust the stock market.
Report Post »kalli
Posted on August 1, 2012 at 9:04pmI always think “soros and his minions” when markets run haywire since that is what he does, manipulate everything.
Report Post »Two Sheds
Posted on August 1, 2012 at 10:28pmYep. These are experiments for the big one.
Report Post »Bill from NJ
Posted on August 2, 2012 at 12:04amYou Sir, have read my mind….
Report Post »Patrick Henry II
Posted on August 1, 2012 at 8:51pmI wonder if they were involved with the crash in 2008 with Soros and Putin? Interesting.
Report Post »FYI, the market will continue up until just after the election.