NYSE Trading In Technical Crash; Volume Explodes

The New York Stock Exchange is looking at irregular trading in the stock of 140 companies, a substantial chunk of the more than 2,800 tickers listed on the world's most prominent bourse, after a morning filled with bizarre market action that at least one market analyst is dubbing "flash crash epic," a reference to the infamous late-afternoon market collapse of May 6, 2010.

At 10:41 a.m. EDT, exchange operator NYSE Euronext sent out a notice to traders that it was conducting a "clear execution error review" on trading between 9:30 and 10:15 a.m. That notice followed a morning filled with wild trading patterns, with shares in various companies inexplicably dropping or rising by over 5 percent -- or trading at over 40 times usual volume -- on no apparent news.

Usually thinly traded issues swung up and down in uncharacteristic manner while posting impossibly high volumes.

Fully 52 issues traded at a higher volume than the heavily traded tracking ETF for the S&P 500 (NYSEARCA: SPY), something that Eric Scott Hunsader, chief executive at market data analysis firm Nanex LLC says "never happens," since "SPY is always, or almost always the most traded."

Hunsader's research firm put together a list of 113 stock symbols that saw unusual volume Wednesday, which is reproduced below, and could give a good sense of the companies affected. They include Finnish cellphone maker Nokia Corporation (NYSE:NOK), tiremaker Goodyear Tire and Rubber Company (NYSE:GT), motorcycle manufacturer Harley-Davidson Inc. (NYSE:HOG), electronics retailer RadioShack Corporation (NYSE:RSH), online broadcaster Pandora Media Inc. (NYSE: P) and healthcare products provider Allergan Inc. (NYSE:AGN), all of which saw massive swings in their share prices close to or over 10 percent.

Rich Adamonis, a spokesman for the exchange, said the review was still underway but that it had been at least ascertained that "the systems were working properly."

That assertment did not inspire a lot of confidence in the market around lunchtime, as rumors swirled that the unusual market action was coming out of market-maker.

"I think this is a systems failure," Hunsader said, noting the way a large volume of trades were marked as "regular" trades suggested a tertiary market-maker had inadvertently been allowed to inundate the market with a slew of orders, perhaps in a ham-fisted attempt to try out a new trading strategy. Hunsafer and others speculated it could all be related to the introduction of the Retail Liquidity Program, a "dark pool" trading platform that went online Wednesday morning.

"It looks like somebody hooked up and maybe mucked up," Hunsader said.

Many fingers were being pointed at market-maker Knight Capital Group Inc. (NYSE: KCG), though it is not year clear they were exclusively to blame for the unusual market action. In a statement, that company noted that "an initial review by Knight indicates that a technology issue occurred in the company's market-making unit related to the routing of shares of approximately 150 stocks to the NYSE. Knight notified its market-making clients this morning to route listed orders away."

Knight shares were down about 22 percent in afternoon trading.

Joe Saluzzi, a partner at New Jersey-based Themis Trading, who has been highly critical in the past of the effect of algorithm-focused trading in the market, said what he termed the "flash smash" was likely the result of "a rogue algorithm wreaking havoc on the market."

"This is a market structure failure," Saluzzi said, "The equity market has been hollowed out some time now. When you have a market like that, you're going to have events like this, where everything is going crazy when no one knows what's going on."

By mid-afternoon, it seemed the markets had stabilized, but there were still many questions on the table. It was not clear how many investors had been affected by the market action, but Saluzzi noted he couldn't "even imagine how many stop loss orders were unnecessarily triggered today and how much money investors lost today."

"What you're going to hear is that it was a technical event and everything is fixed now. Unfortunately, people are getting hurt," he said.