Intel Trading Halted — Was Something Fishy?

Anatomy of a trade: Here's what happened to Intel. I have previously discussed the fragmentation of the stock market into multiple pools of liquidity. This may have been a factor in the strange trading halt in Intel we saw earlier today (Friday).

Today, Intel was halted twice: once for News Pending due to the company's lowering of its revenue guidance for the third quarter.

But it is the second halt that has traders scratching their heads. Here's what happened:

At 10:15:00am ET, Intel was trading at $18.06.

Just after that trade, also at 10:15:00am ET, there were 3 trades on Arca: an 800 share trade, a 200 share trade, and a 100 share trade, all at $16.55. All three were subsequently cancelled.

These were declines of 8.3 percent, NOT ENOUGH to trip the circuit breaker, which requires that a stock be halted for 5 minutes if it moves up or down 10 percent in less than 5 minutes.

However, 2 minutes later, at 10:17, Intel printed at $18.21, which is 10 percent ABOVE the $16.55 print, and occurred less than 5 minutes after that print, so this is what initiated the trading halt.

In other words, Intel was halted because it traded 10 percent ABOVE that $16.55 print.

It subsequently reopened at 10:22 at $18.18, about where it was trading prior to the halt.

The question traders are asking is, "how did those $16.55 trades get on the tape?" — when they were clearly outside the parameters of where the stock was trading.

Fat fingered trade? Maybe, but there are plenty of structural issues that could account for this. Bottom line: we have multiple pools of liquidity now (there are about a DOZEN exchanges, and probably 40 alternative trading systems: dark pools, internalizers, and others), and it is possible that these pools are not nearly as deep as some people think.

This is not an argument against circuit breakers: better to halt and limit the damage. However, why does a clearly erroneous trade get printed in the first place, even if it is subsequently cancelled?

Expect the SEC to address fragmentation of markets in their final Flash Crash report, due in September.

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