Wall St circuit breakers fail to ease market nerves

By Chuck Mikolajczak

NEW YORK, Oct 22 (BestGrowthStock) – Market circuit breakers put in
place after the May 6 “flash crash” have not stopped large
swings in U.S. stocks (Read more about the stock market today. ) and traders remain wary of glitches in
the trading system.

The speed of trading, owing to high frequency strategies,
means plenty of trades can take place even after a halt is put
in place by circuit breakers.

The last stock to be halted due to a circuit breaker,
Progress Energy Inc (PGN.N: ), had more than 100 trades occur
after the stock triggered a halt and resulted in nearly 60
canceled trades. For details, see [ID:nN2793205]

“It’s under the spotlight more now since May 6,” said Joe
Saluzzi, co-manager of trading at Themis Trading in Chatham,
New Jersey. “I don’t want to say it’s knocking at confidence,
but some people get frustrated about it.”

The circuit breakers were imposed by the U.S. Securities
and Exchange Commission to prevent the kind of turmoil seen on
May 6 when the Dow Jones industrial average lost then recouped
around 700 points in about 20 minutes.

With the new regulations, head-scratching moves in
individual issues are increasingly under the microscope.

On Monday, nearly $500 million in trades in the SPDR S&P
500 ETF Trust (SPY: ) were canceled. The trades occurred at a
price of 106.46, several points below where the index was
trading at that time.

The NYSE Arca exchange attributed the trades being
completed to an issue with a software release, causing the
closing auction cycle to run at 4:15 p.m. and the trades to be
ruled broken by NYSE Arca Market Management.

Large orders filled on illiquid exchanges — a practice
known as “ripping the book” — have resulted in halts of large
stocks such as Nucor Corp. (NUE.N: ) and Cisco Systems Inc.
(CSCO.O: ) For details, see [ID:nN14268288]

“It shows you the fragmented market isn’t necessarily
working. When you had a central liquidity place when there was
two dominant exchanges you didn’t have that type of situation,”
added Saluzzi.

Lately a handful of very small stocks have been the target
of trading strategies that result in sharp upward moves,
seemingly without news. LiveDeal (LIVE.O: ), a company with a
tiny market capitalization of $2.68 million, saw its share
price more than triple to $14 a share on Thursday from $4.42
the day before. Shares fell to $9.89 on Friday.

With any new regulation, there are going to be teething
problems. Investors are trying to maintain their confidence in
the system as they come to grips with the changes.

“This thing will start working the way it’s supposed to,”
said Paul Mendelsohn, chief investment strategist at Windham
Financial Services in Charlotte, Vermont.

“That 60 trades got through is better than 10,000, but they
are still going to be fixed after they get through — nobody is
going to get stuck with those trades that went through after
the circuit breaker,” he said. “I still don’t like the way the
game is set up today, but I’m not going to change it.”

Wall St circuit breakers fail to ease market nerves