Trading system glitch adds to fears of market correction
Saturday, 8 May 2010
Yang Lei and Niu Hairong
An unprecedented sharp market plunge gripped Wall Street and sent investors into panic Thursday. While it is widely agreed that an electronic trading system glitch triggered the heavy sell-off, the market, in a broader picture, may have already been set for a correction long overdue.
"It is a bit of craziness, it is an over panic situation," David Henderson, a veteran trader at the New York Stock Exchange (NYSE), told Xinhua. "(I have seen) nothing like this," he said.
According to Dow Jones Indexes, the crazy moment hit at 14:47:25 ET Thursday afternoon, when the Dow dropped 998.5 points, or 9.19 percent, to below 10,000 points. It was the index's biggest intra-day point plunge ever, and the largest percentage intra-day loss since the market crashed on October 19, 1987, when the index closed 22.6 percent lower.
Speculation of bad trades emerged in the market as many traders suspected a glitch in the trading of Dow component Procter & Gambles played a role in the heavy selling. Many media reports have confirmed with their sources that one trader typed "b" instead of "m" in the unit million while trading P&G stocks.
P&G shares plunged as much as 36.7 percent to 39.37 dollars before rebounding to close at 60.75 dollars, 2.3 percent lower. Similar things happened to 3M, another Dow component.
The Securities and Exchange Commission issued a statement saying regulators were reviewing what happened and "working with the exchanges to take appropriate steps to protect investors."
NASDAQ announced that it would cancel trades that were executed between 2:40 p.m. and 3:00 p.m. greater than or less than 60 percent away from the consolidated last print in that security at 14:40:00 or immediately prior. The NYSE also said it would cancel some trades on its electronic platform.
But the market was heading downward, with or without the erroneous trades.
The world's equity markets rallied most of the past year after the historic lows in March last year, on expectations that the economy was turning around. Despite mounting doubts and calls for a pull-back, stocks rose steadily in the past three months.
Fears are mounting that Greece's debt crisis would spread to other euro zone economies. On Tuesday, rating agencies warned of further downgrading of sovereign credit ratings for Spain and Portugal.
Moody's Investor Service said the banking systems in several European nations including Italy, Spain, Ireland, Portugal and Britain could be hurt badly as sovereign debt woes intensify.
Also, there is growing concern that Greece is likely to default. Thursday's plunge came shortly after the Greek parliament's approval of a set of new austerity measures sparked social riots.
The European Union and the International Monetary Fund have urged the Greek government to make greater efforts to cut its deficit as a condition for a 110-billion-euro (140 billion dollar) bailout package. The benchmark index has lost nearly six percent of its value in the last three days, the largest three-day drop in 14 months.
The euro extended its decline against the U.S. dollar to a fresh 14-month low, putting commodities under great pressure. Crude oil prices tumbled to 77.11 dollars a barrel on Thursday, the lowest level since February.
Alan Valdes, chairman of Huade International, a U.S. investment banking service group, said the euro-dollar issue may lead to capital fleeing from equities into the dollar.
Thursday's deep plunge has raised investors' doubts about the rally and reinforced market bears' forecasts of a further correction in the stocks. Most analysts agree that stages have been set for a serious pull-back, and the only question is how deep it would be.-- Xinhua
An unprecedented sharp market plunge gripped Wall Street and sent investors into panic Thursday. While it is widely agreed that an electronic trading system glitch triggered the heavy sell-off, the market, in a broader picture, may have already been set for a correction long overdue.
"It is a bit of craziness, it is an over panic situation," David Henderson, a veteran trader at the New York Stock Exchange (NYSE), told Xinhua. "(I have seen) nothing like this," he said.
According to Dow Jones Indexes, the crazy moment hit at 14:47:25 ET Thursday afternoon, when the Dow dropped 998.5 points, or 9.19 percent, to below 10,000 points. It was the index's biggest intra-day point plunge ever, and the largest percentage intra-day loss since the market crashed on October 19, 1987, when the index closed 22.6 percent lower.
Speculation of bad trades emerged in the market as many traders suspected a glitch in the trading of Dow component Procter & Gambles played a role in the heavy selling. Many media reports have confirmed with their sources that one trader typed "b" instead of "m" in the unit million while trading P&G stocks.
P&G shares plunged as much as 36.7 percent to 39.37 dollars before rebounding to close at 60.75 dollars, 2.3 percent lower. Similar things happened to 3M, another Dow component.
The Securities and Exchange Commission issued a statement saying regulators were reviewing what happened and "working with the exchanges to take appropriate steps to protect investors."
NASDAQ announced that it would cancel trades that were executed between 2:40 p.m. and 3:00 p.m. greater than or less than 60 percent away from the consolidated last print in that security at 14:40:00 or immediately prior. The NYSE also said it would cancel some trades on its electronic platform.
But the market was heading downward, with or without the erroneous trades.
The world's equity markets rallied most of the past year after the historic lows in March last year, on expectations that the economy was turning around. Despite mounting doubts and calls for a pull-back, stocks rose steadily in the past three months.
Fears are mounting that Greece's debt crisis would spread to other euro zone economies. On Tuesday, rating agencies warned of further downgrading of sovereign credit ratings for Spain and Portugal.
Moody's Investor Service said the banking systems in several European nations including Italy, Spain, Ireland, Portugal and Britain could be hurt badly as sovereign debt woes intensify.
Also, there is growing concern that Greece is likely to default. Thursday's plunge came shortly after the Greek parliament's approval of a set of new austerity measures sparked social riots.
The European Union and the International Monetary Fund have urged the Greek government to make greater efforts to cut its deficit as a condition for a 110-billion-euro (140 billion dollar) bailout package. The benchmark index has lost nearly six percent of its value in the last three days, the largest three-day drop in 14 months.
The euro extended its decline against the U.S. dollar to a fresh 14-month low, putting commodities under great pressure. Crude oil prices tumbled to 77.11 dollars a barrel on Thursday, the lowest level since February.
Alan Valdes, chairman of Huade International, a U.S. investment banking service group, said the euro-dollar issue may lead to capital fleeing from equities into the dollar.
Thursday's deep plunge has raised investors' doubts about the rally and reinforced market bears' forecasts of a further correction in the stocks. Most analysts agree that stages have been set for a serious pull-back, and the only question is how deep it would be.-- Xinhua