Tags: Stocks | Computer | Trading | Fears

Swings in Small-Cap Stocks Spur Computer-Trading Fears

Wednesday, 01 August 2012 12:02 PM

Dozens of U.S. stocks swung 10 percent or more without accompanying news in the first minutes of trading, whipsawing investors and spurring speculation that computers distorted prices for the second time in two weeks.

The New York Stock Exchange and Knight Capital Group Inc. said they were investigating. Goodyear Tire & Rubber Co. rose more than 10 percent in the minutes after the 9:30 a.m. open in New York. Manitowoc Co. gained 14 percent, Pandora Media Inc. climbed almost 11 percent and Level 3 Communications Inc. plunged 15 percent before the swings narrowed minutes later, according to data compiled by Bloomberg.

Knight, the Jersey City, New Jersey-based brokerage and one of the largest market makers for U.S. equities, is “looking into” the trades, spokeswoman Kara Fitzsimmons said in an e-mailed statement. Its own stock declined as much as 12 percent to $9.08, the lowest level since 2006. The NYSE said it was reviewing trades in 148 securities between 9:30 a.m. and 10:15 a.m. New York time, according to a statement on its website.

It’s “yet another example of how the market structure plumbing is responsible for massive price distortions,” Joseph Saluzzi, co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in an e-mail. “August 1st will be another day that will destroy investor confidence just like the May 6th flash crash.”

Eric Ryan, spokesmen at NYSE, said in an e-mail “I’m not aware of anything.” Robert Madden, a spokesman for Nasdaq OMX, did not respond to a phone call and e-mail requesting comment.

Knight’s market-making business traded a daily average of $19.5 billion worth of equities in June with volume of 3.1 billion shares, according to the company’s website.

Repeating Patterns

The trading comes two weeks after investors in three of the biggest Dow Jones Industrial Average stocks witnessed repeating fluctuations, fueling speculation the moves were a consequence of computerized trading. Shares of International Business Machines Corp., McDonald’s Corp. and Coca-Cola Co. swung between successive lows and highs in intervals that began near the top and bottom of each hour on July 19, data showed.

Regulators have increased scrutiny of computerized strategies that rose to prominence in the U.S. after more than a decade of market structure reform. The Securities and Exchange Commission and Commodity Futures Trading Commission blamed a broker’s algorithm for setting into motion the events that caused the May 6, 2010, market crash that briefly erased $862 billion from U.S. equities in less than 20 minutes.

Trading was halted on at least five stocks after they tripped so-called “circuit breakers” designed to prevent surges and plunges linked to unusual trading. China Cord Blood Corp. soared more than 150 percent; CoreLogic Inc. fell more than 11 percent; Trinity Industries Inc. rose 17 percent; Kronos Worldwide Inc. climbed 19 percent; and Molycorp Inc. fell almost 18 percent.

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Wednesday, 01 August 2012 12:02 PM
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