Flood of Errant Trades Is a Black Eye for Wall Street

An automated stock trading program suddenly flooded market with millions of trades Wednesday morning, spreading turmoil across Wall Street and drawing renewed attention to fragility and instability of nation’s stock markets. While the broad stock indexes quickly recovered and ended the day slightly down, it was the latest black eye for the financial markets. The runaway trading suggests regulators have not been able to keep up with electronic programs that increasingly dominate supercharged market, have helped undermine investor confidence in stocks. Traders on Wednesday said rogue algorithm repeatedly bought and sold millions of shares of companies like RadioShack, Best Buy, Bank of America, American Airlines, sending trading volume surging. While trading firm involved blamed a “technology issue,” company and regulators were still trying to understand what went wrong. The debacle comes after the botched Facebook initial public offering on the Nasdaq exchange in May and aborted effort in March by another exchange, BATS Global Markets, to bring its own stock public. The episodes, along with the flash crash of 2010 when market lost trillions of dollars of value in minutes, have stoked suspicions that stocks are safe only for specialists, and sometimes not even for them. “The machines have taken over, right?” said Patrick Healy, the chief executive of the Issuer Advisory Group, a capital markets consulting firm. “When events like this happen they just reaffirm that these aren’t investors, these are traders.” The errant trades began hitting exchanges almost as soon as the opening bell rang and came from a single New Jersey broker that specializes in computer-driven trading, the Knight Capital Group. Shares of more than 100 companies, including big names like Alcoa, Citigroup and Ford suddenly spiked up or down. New York Stock Exchange had most of the mistaken orders, but all of nation’s exchanges executed trades for Knight and all agreed to cancel the trading in six stocks that had especially extreme movements. One of the six, Wizzard Software, saw twice as many shares traded in the first half-hour as there were during all of Tuesday, artificially catapulting its stock more than 300%, according to the data firm Nanex. Trades placed by Knight may have left firm with millions of shares of overpriced stocks that quickly lost their value after chaos ended, but company did not comment on its potential losses. Firm’s own shares ended day down 32% amid concerns about disgruntled customers and lawsuits. Knight is one of many companies whose fortunes have risen as regulators made a series of changes over the last 15 years that have opened up the markets to new exchanges and trading firms that use computer programs, or algorithms, to execute thousands of trades a second. High-speed firms use algorithms to make money from small changes in stock prices and now account for more than half of all stock trading. But the changes have also introduced instability into the system, which was made clear in the flash crash. After that event, Securities and Exchange Commission set out to add safety valves to the system. But the turbulence on Wednesday reinforced the belief that regulators had not been able to keep up with growing sophistication and speed of the market they were overseeing (…..)

Link: http://www.nytimes.com/2012/08/02/business/unusual-volume-roils-early-trading-in-some-stocks.html

Acerca de ignaciocovelo
Consultor Internacional

One Response to Flood of Errant Trades Is a Black Eye for Wall Street

  1. Professor Uziel Nogueira says: Humans have also created machines; and their new creations, in turn, have raised the question of whether animals are merely a variant of the machine and whether the machine, as a kind of monster, can turn against its creator and either “take over” or make humans over into its own image. This is a fascinating proposition. Do machines take over man in Wall Street? Does man lose control of money to machines?

    http://www.nytimes.com/2012/08/02/business/unusual-volume-roils-early-trading-in-some-stocks.html

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