296 'funked up' stocks -- trades canceled

By David Goldman, staff writer


NEW YORK (CNNMoney.com) -- After one of the most wild days on Wall Street, Nasdaq canceled trades of 296 stocks whose prices fluctuated the most.

At around 2:45 p.m. ET on Thursday, trades of a number of stocks listed on the New York Stock Exchange were slowed for about a minute due to excessive volatility. During that short time, those stocks were opened up to electronic markets like the Nasdaq.

That's when at least 296 stock prices saw enormous price changes. Nasdaq has said it will cancel all trades that were executed between 2 p.m. and 3 p.m. ET, in which the stock price traded more than than 60% off of the stock's price at 2:40 p.m. (See the 296 stocks for a list of the stocks with canceled trades.)

Nasdaq coordinated the cancellations with other U.S. stock exchanges, and said the decision could not be appealed.

Around the same time that many stocks began to trade at strange prices, nearly every stock on the market began to rapidly sell off. The Dow Jones industrial average, which had been down about 400 points just before 2:45 p.m., plunged nearly 1,000 points in a matter of minutes.

It is still unknown who -- or what -- exactly triggered the massive sell-off and why a number of stocks that were trading at $40 or $50 a share fell momentarily to just a penny.

Many believe that the glitch was triggered by a series of events that began when the NYSE slowed down trading of a number of stocks, including Procter & Gamble.

Shares of P&G fell 10% at around 2:45 p.m. Thursday, at which point the stock hit what's known as a "circuit breaker." The stock stopped trading on the NYSE for 80 seconds, and trades opened up on a number of competitors' electronic exchanges.

But the circuit breaker mechanism that was designed to cool traders' heads had the opposite effect: The slowed trading occurred at a time that investors were growing increasingly worried about Greece's debt issues and other economic factors. The Dow, which was already down about 200 points at the time, quickly dropped about another 200 points in the 15 minutes between 2:30 p.m. and 2:45 p.m.

"The problem is that when [the NYSE] slowed down, it effectively took their traders out of the market at a time when everyone else wanted to sell," said James Angel, a professor of finance at Georgetown University.

In other words, when the NYSE paused its trading, the off-exchange computers found no bids, or offers to buy. The computers, which were looking for the best bid, were tripped up to believe the best bid was $0. The high-speed trading computers are designed to add a penny to each trade to make a commission on every deal, so the computers placed bets at a penny higher, or 1 cent.

"Sell orders became desperate and went straight to their competitors' exchanges, which weren't slowed down," said Angel. "Since there were no other buyers, some computers had entered orders at a penny, so some stocks traded all the way down."

Duncan Niederauer, chief executive of NYSE Euronext similarly told CNNMoney on Thursday that stocks are very thinly traded in such situations, which can lead to wild volatility. Even though many of the trades never actually went through, even an unclaimed buy or sell order could have brought the stocks' prices down to a penny.

Seeing stocks at such a low level triggered a momentary panic.

Accenture (ACN) fell from $40.13 at 2:45 p.m. all the way to just 1 cent before quickly rising back to $39.57.

Sam Adams maker Boston Beer Co. (SAM) also fell to a penny before recovering to $55.82.

Oxford Industries (OXM) tanked to $1.34 before soaring back to $19.51 a minute later.

But some other wild trades were not canceled by Nasdaq. For instance, Apple (AAPL, Fortune 500) traded down 22% to $199.25 before recovering, but those trades were upheld.

Most notably, Nasdaq did not cancel trades of Procter & Gamble (PG, Fortune 500) or 3M (MMM, Fortune 500), which momentarily fell 37% and 22%, respectively.

Both are components of the Dow, and their combined drop in price at around 2:45 contributed a loss 315 points to the Dow index. The Dow fell nearly 1,000 points before storming back to finish the day down 348 points.

See the list of the canceled stock trades, courtesy of Nasdaq:  To top of page

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