For what's usually a boring August, the stock market today - and, this week - has kept traders busy...
At 12:21 p.m. EST Thursday, the Nasdaq Stock Market alerted traders that it halted all trades in Nasdaq-listed securities and options due to a technical glitch.
The alert read: "Due to issues with quote dissemination to the UTP, SIP, NASDAQ BX and PSX are halting trading in Tape C securities until further notice." A second alert was sent at 12:28 adding that Nasdaq halted options trading.
Trading resumed in a handful of securities around 3:10 p.m. By 3:25 p.m., trading was restored in all equities, with option trading picking up again at 3:40 p.m.
Amid the chaos, Money Morning Chief Investment Strategist Keith Fitz-Gerald advised readers to "take a deep breath" and keep calm.
"This is definitely a frustrating development and one that highlights how fragile the financial wizards have made the system. For all the sophistication of today's trading, market prices are still a matter of buying and selling," explained Fitz-Gerald.
Some 3,200 securities, 110 (22%) of them S&P 500 members, are listed on the Nasdaq. Names run the gamut from heavily traded companies such as Apple Inc. (Nasdaq: AAPL), Cisco Systems (Nasdaq: CSCO), Google Inc. (Nasdaq: GOOG), and Microsoft Corp. (Nasdaq: MSFT) to a cache of small caps.
The nearly three-hour long interruption meant that investors, traders, and market makers had extremely limited, if any, access to buy and sell thousands of securities. And because so much of today's market trading is intertwined, the implications are far-reaching.
"IBM (NYSE: IBM) is not traded on Nasdaq, but halting trading on Microsoft and Oracle (which moved to the Big Board on June 20) may have an impact on IBM," Sal Amuk, equity trade and co-founder of Themis Trading, told the Washington Post.
While Nasdaq didn't provide a reason for the market mayhem, much to the chagrin of the trading community, professionals weighed in on what could have caused the hiccup...
- A hacker
- A fat finger (trader's typo)
- A high-frequency trading miscarry
- New software
- A combination of the above
Bottom line: a combo of technology and Wall Street's massive power...
"As we continue to eliminate human beings from the execution of security trading, this is the problem you run into," Stephen Massocca, managing director of Wedbush Equity Management LLC in San Francisco, told Reuters. "These events are going to take place, given the level of automation."
The snafu is the latest in a recent string of "issues" that have plagued the U.S. securities trading businesses, resulting in another serious blow in confidence surrounding U.S. market operations.
In fact, Money Morning Capital Wave Strategist Shah Gilani has warned that a big sell-off - something that often stems from automation and high-frequency trading - is making him nervous. He explains in the following video:
The most recent snafu occurred Tuesday, when a technical hitch in a Goldman Sachs Group Inc. (NYSE: GS) trading system resulted in a broad swath of erroneous executions that is expected to cost Goldman hundreds of millions of dollars. (Gilani explains here what the Goldman snafu is really about...)
And, the fiasco that followed the fabled Facebook Inc. (Nasdaq: FB) initial public offering, leaving the Nasdaq with a serious black eye, is still fresh in investors' memories.
Five Momentous Trading Halts
While rare, trading halts are not new. Following are five that have rocked stocks:
- Monday, Oct. 19, 1987: A day dubbed Black Monday, the Dow suffered its biggest percentage drop ever, plunging 508 points, a 22.61% loss. Trading was halted midday in attempts to stop the slaughter, yet resumed for the final hour of trading.
- Monday, Oct. 27, 1997: Trading was halted twice amid the Dow's biggest point loss (at the time - 554 points, or 7.2%.
- Tuesday, Sept. 11, 2001: A day that needs no introduction, U.S. markets halted trading for an unprecedented four sessions. When trading resumed one week after the terrorist attacks, the Dow fell 684.81 points, or 7.13%, on Sept. 17.
- Wednesday, Aug. 1, 2012: A torrent of unusually high-volume trades tore through dozens of stocks on the NYSE in early trading due to a technical error at market maker Knight Trading. Heavy computer-based trading erupted at the open, causing a trading halt in a handful of NYSE- listed stocks.
- Monday, Nov. 12: The NYSE halted trading in more than 200 stocks due to a technical glitch. The stocks were actively trading on other markets, but NYSE quotes were consistently incorrect, and a halt was implemented.
Nasdaq Halts Trading over Technical Glitch
Latest Technical Glitch Brings Nasdaq Trading to a Halt