--Traders report unusual trading across dozens of stocks
--Knight Capital Group looks into technical issues with trading
systems
--Regulators, exchanges to cancel trades in six stocks
(Adds detail on canceled trades, conference call among
exchanges, in the third through sixth, 12th and 13th
paragraphs.)
By Jacob Bunge
U.S. stock traders and exchanges Wednesday grappled with a wave
of orders that roiled the market and prompted exchanges to halt
trading in some securities, raising concerns another technology
problem may dent investor confidence.
Knight Capital Group Inc. (KCG), one of the largest U.S. trading
firms, told brokerage customers to send orders elsewhere and said
it was probing a software problem that affected about 150 stocks
listed with NYSE Euronext (NYX), including components of the Dow
Jones Industrial Average.
Exchanges and regulators Wednesday afternoon determined to void
trades in six of those stocks, allowing the remainder to stand and
sending Knight's share price falling 29%.
With some securities seen changing hands at many times their
normal rate, the problems drew scrutiny from regulators already
examining whether some other high-profile stock-market disruptions
have been driven by glitches in electronic-trading systems or by
more-fundamental problems with the plumbing of financial
markets.
Officials at U.S. stock exchanges convened a conference call at
10:30 a.m. Wednesday to discuss which trades would stand after
dozens of securities experienced big price swings or unusually high
volume, sending traders scrambling. The call was still continuing
as of 3:30 p.m. Wednesday, according to a person familiar with the
matter.
The New York Stock Exchange was investigating unusual trading
activity in dozens of stocks on its Big Board and NYSE MKT venues
for companies that ranged from Alcoa Inc. (AA) to Yingli Green
Energy Holding Co. Ltd. (YGE).
Equity-trading volumes surged during the first 45 minutes of
trading in blue chips including Bank of America Corp. (BAC),
Berkshire Hathaway Inc. (BRKA, BRKB), General Motors Co. (GM),
General Electric Co. (GE) and Pfizer Inc. (PFE).
Shares of E.I. DuPont de Nemours & Co. (DD) shot as much as
4.8% higher, serving as the biggest-percentage gainer on the Dow
Jones Industrial Average before settling back down. The stock was
up 0.9% recently.
Traders described unusual gyrations in some stock prices early
in the trading session as a large number of buy and sell orders
blasted across electronic-trading platforms. "We're panicked," said
Phil Orlando, chief equity strategist for Federated Investors in
New York, which manages $370 billion and was flustered by a sudden
downdraft in shares of Herbalife Ltd. (HLF), which the firm
holds.
"This stock should be going up because they just blew the
quarter out two days ago," said Mr. Orlando. "Our analyst is
pulling his hair out."
In a notice Wednesday morning, NYSE Euronext told traders it was
reviewing trades in 148 symbols executed between 9:30 a.m. and
10:15 a.m. New York time. All of the exchange operator's systems
and volatility controls operated normally throughout the period,
according to a spokeswoman.
Exchanges determined to "bust" trades in just six of those
stocks, voiding deals that were done at prices that were 30% or
more away from the affected securities' opening prices during the
45-minute time frame.
Transactions were canceled in the shares of Wizzard Software
Corp. (WZE), China Cord Blood Corp. (CO), E-House (China) Holdings
Ltd. (EJ), American Reprographics Co. (ARC) and Quicksilver
Resources Inc. (KWK). Some trades were also canceled in "rights"
for the Reaves Utility Income Fund (UTG), which convey the ability
to buy shares.
"Down here we're continuing to trade and use all the powers and
rules and regulations we have to make sure trades are executed in
the proper manner," said Jonathan Corpina, senior managing partner
with Meridian Equity Partners and a floor governor at the New York
Stock Exchange.
Knight was the focus of Wednesday's volatility as it told
clients of its trading services, including retail-brokerage firms
and institutions, to send their stock orders elsewhere due to
technical problems, according to people involved in the
situation.
The system error and reports of irregular trading stoked
suspicions that trades had been accidentally duplicated via
computer algorithms, rather than the problem being limited to one
server, as has happened in the past, traders said.
A spokesman for the Securities and Exchange Commission said the
agency is "closely monitoring the situation and in continuous
contact with the NYSE and other market participants." The
self-regulatory Financial Industry Regulatory Authority, or Finra,
was also examining the episode, according to people familiar with
the matter.
Knight shares were recently down 29% at $7.36 in afternoon
trading Wednesday. Last month, the company disclosed it had
suffered a $35.4 million loss on trading in shares of Facebook Inc.
(FB) during its stock-market debut in May. Knight Chief Executive
Tom Joyce loudly criticized Nasdaq OMX Group Inc. (NDAQ) for its
handling of that IPO.
The episode struck on the same day NYSE Euronext introduced a
new program designed to produce more competitive prices for retail
investors. What is known as the retail-liquidity program enables
market-makers to offer improvements on stock prices in fractions of
a cent, a new function for stock exchanges.
--Andrew Ackerman, Jonathan Cheng, Christopher Dieterich, Steven
Russolillo and Jenny Strasburg and Michael Driscoll contributed to
this article.
Write to Jacob Bunge at jacob.bunge@dowjones.com.
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