Trading glitch rips through US stock market
New York, August 2, 2012
A technology breakdown at a major trading firm roiled the prices of 140 stocks listed on the New York Stock Exchange on Wednesday, undermining the fragile investor confidence.
The problems at Knight Capital Group, one of the largest firms that buys and sells stocks to provide liquidity to the markets, emerged at the beginning of trading.
Heavy computer-based trading caused a rush of orders for dozens of stocks, ranging from well-known bellwethers like General Electric to tiny Wizzard Software Corp, whose shares soared to $14.76 after closing the previous day at $3.50. The NYSE has canceled trades in six particularly volatile issues.
The trading glitches are the latest in a series of market snafus that have hurt retail investors' confidence, including the botched Facebook initial public offering, the 2010 "flash crash" in which nearly $1 trillion in market value disappeared in minutes, and the failed public offering of BATS Global Markets, a rival to the NYSE and the Nasdaq.
The exact nature of the technology issues were unclear. The the magnitude and fallout for Knight, which was forced to tell clients to send orders elsewhere, and for the broader market were also unknown. Knight's stock plunged nearly 33 percent to $6.94, a nine-year closing low for the stock.
Knight Capital issued a terse statement acknowledging the trading errors, but company officials were not available for further comment.
"This morning, a technology issue occurred in Knight's market-making unit related to the routing of shares of approximately 150 stocks to the NYSE," Knight said in the statement.
Observers said the problem highlighted the weaknesses in the market that remain two years after the Flash Crash. "The structure that we have in place is so complicated and intertwined, that all of these entanglements have created real issues in the marketplace," said Christopher Nagy, a consultant to exchanges and brokerages.
Heavy buy orders in some stocks sent prices soaring, while others plunged. Many of the names were lesser-known issues such as Molycorp, a stock that usually averages about 2.65 million shares daily but which saw volume of more than 5.7 million shares in the first 45 minutes of trading, bouncing between $17.50 and $14.35 in that period.
The mood at the Knight Capital booth on the NYSE trading floor was somber, with worried traders taking numerous phone calls as well as answering questions from NYSE officials who were making inquiries on the floor.
Many on the floor were aware that the problematic trades were coming from Knight. - Reuters