Snafus in the electronic trading systems of US stock exchanges have multiplied of late, eroding investor confidence and skewing prices as a result of massive order volume. Wednesday August 1 was the latest trading debacle, causing significant price swings in over 150 stocks. Orders in six small cap listings were canceled.
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Waves of orders in specific securities caused exchanges to halt trading in those listings, some of which were trading at 20 times their normal rate. Regulators have already been looking into the trading glitches that occurred on the day of Facebook’s first day of trading.
That day, coupled with the flash trading day in May of 2010 plus Wednesday’s unusual action is garnering deeper regulatory scrutiny. Regulators are investigating to see whether electronic trading systems are to blame or if there are more fundamental issues at work.
The wild trading occurred between 9:30 a.m. and 10:15 Eastern time on Wednesday. Even members of the Dow Jones Industrial Average experienced hyper trading activity
. The NYSE Euronext introduced a new program that same day that is designed to help individual investors trade more competitively.
The program allows traders to improve stock prices by fractions of a cent and is called the retail-liquidity program. Trades executed by exchange operators including Nasdaq OMX Group, NDAQ +0.40% BATS Global Markets, and Direct Edge Holdings, Inc. are also being investigated.
Some think trades might have been accidentally duplicated by computer algorithms instead of sourced by a single server. The SEC and FINRA are both looking into the incidents.