Why the Trades Were Clearly Erroneous

All stocks at the NYSE have circuit breakers here called LRPs--when stocks trade rapidly outside of certain parameters, the designated market makers can slow trading for short periods to allow bids to catch up, something NYSE Chief Duncan Niederauer said earlier on Closing Bell.

"What we keep saying to people is we trade as fast as anyone else when it is suitable, but we also reserve the right to slow the market down when we think that's appropriate, and today was one of those days," he said.

That's what happened in P&G --trading was slowed for perhaps 90 seconds about 2:45pm when it was trading at roughly $60, in the meantime the stock traded away from the NYSE all the way down to $39.

But it never traded below $56 at the NYSE, even when trading resumed a few seconds later.

How did this happen? We don't know if the sudden drop was caused by an erroneous trade, or by a technology malfunction, or if the stock traded away from the NYSE and there were simply no bids.

What we do know is that similar events happened quickly with other stocks. In the most egregious example, Accenture went from $40 to $0.01 in a couple minutes. There were other examples as well.

Again, how could this happen? In one sense, it doesn't matter what caused the drop. These were clearly erroneous trades. Any common sense definition of "erroneous" would tell you that when a stock goes from $40 to $0.01 something is wrong.

After the close, NYSE Arca and Nasdaq said it canceled all trades executed 60 percent away from the market from 2:40pm to 3:00pm, which would include many trades in Accenture

What's wrong? Trading today--stocks, bond, or commodities--it's a combination of technology and judgment.

Clearly there was a little too much technology here and not enough judgment. Where is the duty of care to clients from a broker when a stock goes from $40 to $0.01?

At least the NYSE designated market makers saw something was happening and acted on it. Unfortunately, the way the rules are everyone can ignore them. Reg NMS says all markets must route orders to the best price, and if you're market is not automatically accessible, or slows down, people can trade through you with complete impunity. That's what happened.

For all the derision the NYSE floor receives, traders who directed their trades to the NYSE floor in Procter & Gamble never saw a trade below $56.

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