Hello, anyone home? IBM, hello?
Just after 3pm ET, the Dow Industrials rocketed up over 50 points, then came down 40 points, all on...nothing.
Well, not nothing — it appears to be another feature of our strange trading system.
IBM was trading just before 3:15pm at $160.76. Then a series of orders (which were likely parts of the same order ) came through: an 8,000 share order went off at $162 at 3:18:15pm, then several hundred trades occurred in the same second culminating in a 12,200 share trade at $163.77, then 7,000 shares at $164.26, and 200 shares at $164.35.
In other words, in a second IBM went from $160 and change to over $164, before quickly dropping back to $161 and change, within seconds. That spike alone was good for nearly 40 points in the Dow.
What happened? Traders tell me that all the trades were done on the New York Exchange, where, apparently, liquidity was thin. Why weren't orders automatically routed to other exchanges to fill what looked like a single order? I don't know.
Regardless, it appears the trades will stand. Shouldn't there have been a halt? No, because the individual circuit breakers (a 10 percent move in 5 minutes) were not triggered. The liquid replenishment point (LRP), the NYSE's internal circuit breaker, is 3 percent on IBM. Presumably the LRP was triggered, which may have slowed trading briefly at the NYSE.
What does this mean? Forget whether some trader made a mistake or not. The bottom line is liquidity is very thin, even on a big stock like IBM. You get $1.00 away from the price, and there is nobody there.
This is not an NYSE problem, this is a structural problem with the whole market. Nobody displays their orders!
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