February 7, 2023

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A malfunction in the New York Stock Exchange leads to extreme swings in stock prices

A malfunction in the New York Stock Exchange leads to extreme swings in stock prices

On Tuesday, the New York Stock Exchange witnessed an imbalance that led to sharp price swings that affected more than 250 stocks, including those of large companies such as Wells Fargo, Verizon and Nike.

Nike shares fell more than 12 percent immediately after the start of trading at 9:30 am in New York. In less than a second, Verizon swung between a loss of more than 17 percent to a gain of nearly 13 percent, while Wells Fargo was down more than 15 percent.

The moves, which added or eliminated billions of dollars in market value, caused the exchange to stop trading in just over 80 different stocks. The exchanges have built-in “circuit breakers” that automatically pause trading if the stock price suddenly swings by a significant amount.

Once trading resumed, the company’s stock prices moved more or less in line with a normal trading day. For example, shares of Nike, Verizon and Wells Fargo were up or lost less than 2 percent by the end of trading on Tuesday.

The exchange said the explanation for the turmoil was a glitch in its system at a critical time for financial markets. Usually a file NYSE The opening auction is held at the beginning of the trading day, bringing together orders from buyers and sellers to determine the opening price for individual stocks. The stock exchange said that for some shares “no auctions were opened”, which led to chaos in the market.

Trading the saw means that some investors paid much more to buy the shares than the prevailing market price, while others paid much less. Some investors said their trades simply did not get executed, with volumes dropping dramatically. Traders said they expect a lot of activity to reverse.

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“Someone is having an unhappy day,” said Edward Monrad, head of market structure at Optiver, a so-called market maker, a type of business that is expected to buy and sell to facilitate trading. “These trades are likely to be busted, which means people are sitting in trades whose existence is not confirmed.”

By the afternoon, the NYSE said its member firms could report wrong deals or seek compensation for losses arising from the events of Tuesday, according to its rules. The exchange later said that some trades in more than 250 shares would be automatically declared “null and void”.

Some investors earlier raised concerns about the extent of price movements, before the circuit breakers went live. Exchanges such as the New York Stock Exchange use what are known as “limit, limit,” triggers to Stop trading stocks If its price moves too much, too quickly.

At the open, this is usually set at 5 percent or 10 percent above and below the stock’s opening price. These triggers are designed to protect investors from sharp moves, giving the markets a moment to pause and reset prices before they spiral out of control.

Trade data shows, however, that some transactions were executed outside of these ranges.

Altria Tobacco closed Monday at $44.81. On Tuesday, it opened more than 15 percent higher at $51.57, which appeared to put the stock’s trading floor lower than 5 percent at $48.99. However, trades were executed within milliseconds at about $47, $38, $42, $45 and $44 before the price jumped back to $48.99, according to the reported trade data.

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Some of those trades were among those the NYSE said it would reverse.

Despite this, reversing trades could create more problems for investors who were not sure whether or not they had bought or sold the stock. This can also lead to trades made on other exchanges being affected by volatility in the NYSE