A Firm Has Taken Responsibility For Today's Violent Stock Swings, But What Happened Is Still Weird


Photo: nanex

This morning, dozens of stocks, including Pandora and Nokia, experienced violent price swings due to one trading firm’s activity within a “dark pool.”Dark pools are private stock markets that connect buyers and sellers electronically so no party’s identity is revealed.

According to the WSJ, the firm responsible for today’s price madness has been identified, and securities regulator FINRA is looking into the matter.

What caused the trades is still a mystery. They were corrected, but even the way that was done leaves questions, according to Eric┬áHunsader, an executive at Nanex, a Chicago based firm that tracks market data. Here’s what he said about this latestest turn of events:

“The correction, and the nature of it, tells us if [the strange trade] was an order entry error, or something else. Almost all the trades were corrected, not cancelled. Which means they were given new prices. Which means they were entered into the system with an incorrect price. One thing that is puzzling is that the new prices are not sub-pennies but the old ones were.”

In other words, the mistaken trades were rounded beyond 2 decimal places of precision (18.xxxx, for example). The corrections were not (so, 18.x, for example).

“I can’t find (for now) any sensible relationship between the new and old prices,” said Hunsader. “I don’t know what that means, other than it wasn’t a typical order entry (fat finger) mistake.”

If it wasn’t mistake, then what caused the strange price spikes could be some kind of predatory trading program or software glitch. So the mystery continues.

Meanwhile, as this and many other recent trading problems make clear, the technology underlying the markets is getting ever more complex. And it’s high time regulators took a deep look into what’s happening.

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