Market Recap: Glitches, Errors, & Mystery Trades Send Stocks Lower

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.