New flash crashes haunt stocks

Individual stocks are getting annihilated in computerized-trading errors. A sign of future disasters?

By Kim Peterson Nov 9, 2010 3:50PM
frustrated © Comstock/JupiterimagesWe haven't seen the last of the "flash crash" -- that trading nightmare that took the Dow Jones industrial average for a 700-point ride in May.

Get ready for the sequel: Spawn of Flash Crash.

Individual stocks are seeing miniature flash crashes with alarming frequency, The New York Times reports. One victim was Progress Energy (PGN), which saw its share price inexplicably plummet nearly 90% in September.

Other stocks, including Citigroup (C) and the Washington Post Co. (WPO), have seen similar erratic swings. One exchange-traded fund got hit as well, Graham Bowley writes.

Is this the new normal in today's computerized trading world? Or are these mini crashes the tremors that portend another market-destroying earthquake in the future? Post continues after video:
In the case of Progress Energy, the Times reports, a "wayward keystroke" by an unknown trader caused a computer algorithm that drove the price from $44.57 a share down to $4.57.

Even now, six weeks later, the company doesn't understand what really happened. And experts say that new trading technologies -- along with the market-manipulating potential they offer -- have created a monster.

"I am worried about the potential instability that these technologies create in market dynamics," Andrew Lo of MIT told the Times. "The U.S. equity markets have become the Wild, Wild West."

"I am upset by how high-speed traders have taken over the market," one mutual-fund manager added. "They make a mockery out of capitalism."


1Comment
Nov 10, 2010 2:28PM
avatar
 "They make a mockery out of capitalism."

NO!!!   Some of WALL ST PLAYERS have been doing that to US for years!

 

Until  the home game is played on the same level as the STREET game,  Capitalism will continue to gain detractors.

 

SO THERE

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