So basically, some dumbass types a "b" instead of an "m" and the whole market goes to hell? It seems like there could be more to this story, is it possible to manipulate the entire market to the tune of 1,000 points? If so, this system might need a little work. How is this going to affect Proctor and Gamble? You know those guys were shitting bricks when there stock began trading at $20 a share lower all of a sudden, especially with no bad news being released. Yikes...
From The Wall Street Journal
Stocks plummeted in a flashback to the panicked trading of 2008. Selling accelerated late in the day due to a wave of automated sell orders that turned an ugly drop into full-blown market washout.
At its afternoon low the Dow Jones Industrial Average was down almost 1,000 points, hurt by sharp drops in Procter & Gamble, 3M and other companies that traders said were subject to heavy selling by so-called black boxes, or automated trading systems.
The Dow recovered much of that loss but still ended with its worst one-day drop since February 2009, off 347.80 points, or 3.2%, at 10520.32. All 30 of its components slid, led by a 7.1% decline in Bank of America.
Shares of Procter & Gamble plunged to $39.37 from around $60. The New York Stock Exchange said each stock has its own circuit breaker level. When these stocks fall below their levels, then they can be traded on any other exchange or platform at any price. When P&G fell below its circuit breaker, a bid came in for the stock at $39.37 from the Nasdaq, the NYSE said.
U.S. stocks plummeted on Thursday afternoon in a furious selloff accelerated by automated orders and possible erroneous trades. The furious decline was a flashback to the panicked trading of 2008, when investors were gripped by fear during the financial crisis.
At its afternoon low, the Dow Jones Industrial Average was down nearly 1,000 points, or 9 percent, on track for the biggest one-day point decline in its history. It was hurt by sharp drops in Procter & Gamble, 3M and other companies that traders said were subject to heavy selling by so-called black boxes, or automated trading systems.
The Dow recovered much of that loss but still ended with a 347.80-point drop, off 3.2%, to 10520.32 amid declines in all 30 of its components. The drop was the worst in point terms since February 2009 and the worst in percentage terms since April 2010.
Representatives of the major U.S. exchanges and the Securities and Exchange Commission convened an emergency conference call late Thursday to examine potentially erroneous trades in multiple stocks.
The trades took place between 2:40 p.m. and 3:00 p.m. EDT, according to a notice from Nasdaq OMX Group Inc. Officials are working to determine which trades will be broken.
"It's a coordinated effort to determine which trades to honor," said a person involved in the discussions.
Initial plans called for exchanges to void trades taking place in that period of time at prices more than 60% below or above the pre-2:40 p.m. time period, according to a person briefed on the discussions. That 30% threshold could still change, the person said.
In one notable intraday swing, shares of P&G plunged to $39.37 from around $60. The New York Stock Exchange said each stock has its own circuit breaker level. When these stocks fall below their levels, then they can be traded on any other exchange or platform at any price. When P&G fell below its circuit breaker, a bid came in for the stock at $39.37 from the Nasdaq, the NYSE said.
"You don't see a blue-chip stock like this go down 20 points with no news," said Frank Ingarra, co-portfolio manager at Hennessy Funds, a quantitative firm that deals with program traders. "All of the algorithms kicked in from this errant thing."
The Big Board also noted that 3M fell below its circuit-breaker level.
Several market watchers said they heard a major firm may have accidentally released an errant program, where a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of e-minis, the futures contracts tied to equity indexes.
E-minis are traded at the Chicago Mercantile Exchange. Allan Schoenberg, a spokesman for CME Group, said the exchange was examining trades.
"Whenever the market moves up or down like the swings we saw today, we take a look to make sure everything's operating properly. That's exactly what we're doing now," Mr. Schoenberg said. "If the exchange finds anything amiss, it would report its finding on its website."
Traders also also noticed apparently errant trades among exchange-traded funds, including the iShares Russell 1000 Value Index Fund, which dropped from close to $60.00 to 7.5 cents.
"These ETFs traded to lows that are not mathematically correct," he said.
Among the Dow's other big losers at the close were Alcoa, American Express, General Electric, Hewlett-Packard, and J.P. Morgan Chase, each of which fell more than 4%.
The velocity of the plunge in stocks was breath-taking. Investors fled from stocks and risky bonds to commodities and poured money into safe assets such as U.S. Treasurys and gold.
Early in Thursday's session, selling was driven by fears of contagion from Greece's debt crisis, a matter that traders expect to loom large for weeks, at least. Though austerity measures passed the Greek parliament, other euro-zone countries must agree to contribute to an assistance package to avoid a default. Such assistance remains politically unpopular in Germany and other countries.
"This feels a lot like 1997 and 1998," when financial crises gripped Asia and Russia, said Brian Belski, chief strategist at Oppenheimer Asset Management. "In just a couple of days, we've gone from a super-bullish mentality to a super-bearish mentality driving the markets."
Important short-term credit markets—such as the market for three-month Libor—began to show signs of stress and corporate bonds tumbled.
New York Stock Exchange composite volume hit 10.6 billion shares, a new high for 2010. The previous record was set April 16 when the government filed fraud charges against Goldman Sachs Group.
Traders described Thursday's trading as driven largely by automated sell orders, which piled up after several technical barriers were breached, in particular the 1150 level on the S&P. "A lot of people thought we had support around that level, so there was some disappointment that it didn't hold," said Phil Roth, chief technical analyst at Miller Tabak.
But he added: "The numbers themselves are a little less important than the manner in which the market gets there. The important thing is that we've had a very non-traditional bull market, without any major correction or several years of advances alternating with sideways periods. This could be the thing that sets off a real correction, but we'll have to wait and see."
Traders leaving for the day in New York faced a growing media hoard waiting for them. They described the session as like a "rollercoaster," "madness" and just plain "crazy."
One trader who has been on the floor for more than 20 years said he'd never seen it like Thursday. "We were just watching the trades go through and nothing was getting down to us on the floor," he said. "We were blindsided." Others said there was an eerie calmness to the ride. "It was kind of somber," one said. "It wasn't as crazy as you'd expect."
The S&P ended at 1128, off 3.2%, hurt by declines in every sector. The Nasdaq Composite Index fell 3.4%.
Despite the drop on Thursday, "right now there is no difference in the U.S. economic recovery that we all were expecting."
Circuit breakers didn't come into play in halting the decline. The low came after 2:30 p.m., a time after which the NYSE doesn't halt trading unless the Dow falls by 20%.
In a flight to safety, investors snapped up U.S. Treasury bonds, pushing their yields as low as 3.27%, their lowest since last December. They recently traded at nearly 3.34%, still an unusually large decline from more than 3.5% at the start of the day.
Biggest Dow Drops
Below are the biggest closing point drops in the history of the Dow Jones Industrial Average.
Date Close Points/%
9/29/2008 10365.45 -777.68/-6.98%
10/15/2008 8577.91 -733.08/-7.87%
9/17/2001 8920.70 -684.81/-7.13%
12/1/2008 8149.09 -679.95/-7.70%
10/9/2008 8579.19 -678.91/-7.33
Source: WSJ Markets Data Group
Amid the carnage, gold also reestablished its position as a safe haven, rising nearly 3% to move than $1,200, trading at its highest levels in five months
Other fear indicators widened quickly, though were still much lower than ahead of the crisis in 2008. The spread between three-month Libor and overnight indexed swaps, which had been creeping wider in recent days, stretched quickly to 14 basis points, or 0.14 percentage point, from 9 basis points at the start of the day, the widest since last September. At the height of the crisis that spread, a closely watched measure of credit risk, was wider than 100 basis points.
The Markit CDX index tracking the cost of insuring against the default of investment-grade corporations jumped more than 25% at the worst of the days's selloff to its highest levels since last July, and was recently up more than 20%.
Oil was down about 5%, and copper fell 1.1%, losing ground for the fourth consecutive day of trading. Prices for those raw materials, and a host of others widely used by consumers and industry, were driven down by mounting fears about stress from European debt woes and questions about Chinese growth.
"It's exactly the same thing" as what's troubling the stock market, said Edward Morse, the global head of commodity research at Credit Suisse. "The decline has been across the board, except for gold."
"We're in total freefall right now," said Joe Benanti, managing director at Rosenblatt Securities. "It's a true flight to safety and to tell you the truth, people are seeing what's going on in Athens on CNBC and it's not helping the market at all. You're just watching things sort of melt away. I was thinking back to the fall of 1987. When you get these real downdrafts, you have people just walking away and waiting for it to find a floor because you don't want to get in when it's still falling."
Investors also remained deeply worried Thursday about the unfolding drama of Europe's efforts to prop up Greece's finances. Despite boisterous street protests, Greece's parliament passed a bill with austerity measures that will give the country access to an assistance package jointly offered by the European Union and International Monetary Fund. Other EU members will take votes in their respective parliaments soon to approve spending on the package, with a first test expected in Germany on Friday.
"A lot of traders are getting carried out of there seats. There are lots of liquidations including hedge funds out of riskier assets," Michael Franzese, head of Treasury trading at Wunderlich Securities in New York. "No one was expecting this sell off in stocks and the euro and a flight to quality trade is in full effect and it not yields levels it just capital preservation."
Investors said they were worried about potential contagion from Greece's problems.
"You worry about the a domino effect, from Greece to Portugal to Ireland and Spain," said Richard Schottenfeld, general partner of Schottenfeld Associates, a New York hedge fund. "Pretty soon those kinds of losses are bigger than housing."
—David Benoit, Jacob Bunge, Dan Fitzpatrick, Donna Kardos Yesalavich, and Kristina Peterson contributed to this article.
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