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May 07, 2010, 01.46 PM IST | Source: Moneycontrol.com

Massive Dow sell off not caused by system error: NYSE

US stocks plunged 9% to as low as 9,869 in the final two hours of floor trading, but quickly bounced back amid reports that the decline was triggered by a trading error. The NYSE, however, has clarified with CNBC that there has been no system errors.

Massive Dow sell off not caused by system error: NYSE

US stocks suffered one of their biggest ever intraday sell-offs yesterday, wiping out about USD 1 trillion in market capitalization at one point before prices recovered some of their losses. The Dow Jones dropped 998 points and stocks plunged 9% to as low as 9,869 in the final two hours of floor trading, but quickly bounced back to close at 10,520 amid reports that the decline was triggered by a trading error at a major firm.

 

A trading error known as the “fat finger problem” at a major investment bank may have caused a huge plunge in the US stock market overnight. A sudden sell-off in the Procter & Gamble stocks, saw investors desert stocks. Procter & Gamble Co has confirmed a sudden drop in its share price was an error.

 

Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.

 

The NYSE, however, has clarified with CNBC that there has been no system errors. Duncan Niederauer, CEO at NYSE said, “This is the market structure we have all signed up for in the US and so we will have to accept that things like this are going to happen in periods of exacerbate volatility. It doesn’t take much volume to move some of these stocks a lot.”

 

Niederauer added there was no trading halt, it was not an hour, it was only a 30 seconds or a minute wait. “If you have a few market sell orders and the next bid in a stock like (on) P&G (which) is down 20-30% on a thinly traded system, that's where the stocks are going because the computer doesn't have any circuit breakers, the computer doesn't have any speed bumps.”

 

“You and I could each send a thousand shares to sell at the market and if there is no bid at the system, the computer is going to go and find it. And it's going to trade way down. All those trades would be taken off the tape. My guess is if you went back and read the tapes for the trades that we guess would be taken off, the Dow shouldn't have been down as it was because all that volume in P&G during the period, none of that was here. We didn't trade the stock for 90 seconds.”

 

Meanwhile, Nasdaq Operations has said it would cancel all trades executed between 2:40 pm to 3 pm greater or less than 60% away from the consolidated last print in that security at 2:40 pm or immediately prior. Nasdaq said the stocks affected and break points will be disseminated soon.

With input from Reuters

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