Acknowledging that there may have been human error in the very sharp but temporary drop in stock prices yesterday, the NASDAQ has canceled trades on dozens of stocks that were made between 2:40 pm and 3 pm.
The action is a quick admission that something went terribly wrong as the market was in free fall. But, the action, while swift, may be premature. The SEC and CFTC are examining what happened. Some experts believe that an incorrect order placed by a major firm was at fault. Others say that high-volume trading programs which stopped bidding for shares caused the incident. P&G shares moved from down 2% to off 21% in a matter of moments. Floor traders had to make adjustments to bring the stock to a reasonable level.
“NASDAQ OMX reported that we had no technology or system issues associated with the trading that occurred between 2:00 p.m. and 3:00 p.m., ET,on May 6,” according to the exchange. That allows it to place the blame elsewhere. Using an arcane rule, NASDAQ said it will simply reverse a number of trades. “We have coordinated a process among U.S. Exchanges and therefore, pursuant to NASDAQ Rule 11890(b), NASDAQ, on its own motion, will cancel all trades executed between 14:40:00 and 15:00:00 greater than or less than 60% away from the consolidated last print in that security at 14:40:00 or immediately prior.”
Some traders who actually may have made money as stocks bottomed based on data that they thought was legitimate, will lose billions of dollars in gains. And, investors who lost billions will have those loses wiped out.Among the 296 companies which will have trades reversed were stocks that trade on both the NYSE and NASDAQ such as Accenture and a number of mutual funds, and ETFs.
The NASDAQ said that “this decision cannot be appealed.” But the fight over the losses and gains of traders during that 20 minute period is not over. There is too much money at stake.
Douglas A. McIntyre
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