If you haven’t read the 3 postings on this site concerning the Flash Crash, this latest piece won’t mean much. But if you have a moment, I’d read the three articles on the “Flash Crash” and then this piece listed on Dow Jones today…..where did they say that that program was sent to?
By LUKE JEFFS
LONDON Circuit breakers prevented sudden losses in five stocks Monday afternoon on the London Stock Exchange from causing a wider market crash, the exchange’s operator said.
The prices of five LSE-listed stocks BT Group PLC, Hays PLC, Next PLC, Northumbrian Water Group PLC and United Utilities Group PLC started to fall suddenly at 2 p.m. local time.
The cause is unknown at this stage but brokers who were watching the market at the time said yesterday it looked like a “fat finger” trade, where a trader pushes a wrong key or sequence of keys, or a glitch in a trading algorithm that automatically generates orders.
The impact of the sudden sell-off was limited however because the LSE’s automatic circuit breakers kicked in when the losses in these stocks neared 10% and trading these names was immediately suspended. The exchange then cancelled all sell orders on these stocks and reopened trading after five minutes, at which time the shares rebounded to their levels before the mini-crash in just a few minutes.
The FTSE 100, which had traded down 0.8% to 5138 between 12.45 p.m. and 1.15 p.m., was unaffected by the sudden fall of these five shares, hovering at the 5150 level throughout.
The London Stock Exchange Group PLC heralded the intervention as a small victory at a time when the European market model has been called into question following the May 6 flash crash when the Dow Jones Industrial Average fell nearly 1,000 points after a similar sell-off in a handful of stocks that wasn’t stopped.
“At around 14:00, our circuit breakers were triggered in a number of securities on the Exchange’s order book,” a spokesman for the LSE said. “These circuit breakers are built into the Exchange’s systems to track the prices at which automatic executions are occurring and will halt execution if certain price movement tolerances could be breached.”
The cause of the May 6 flash crash is being investigated by U.S. regulators but the fact that brokers could continue selling because different trading venues had different circuit breaker rules is believed to have been a factor. Circuit breakers have been triggered on a few occasions on U.S. exchanges since the flash crash.
A month ago Conservative Member of the European Parliament Kay Swinburne published a draft report in which she suggested that “post the ‘Flash Crash,’ all trading platforms stress-test their technology and surveillance systems” to ensure Europe isn’t prone to the factors that led to the U.S. crash in May.
BT Group, Hays and Northumbrian Water Group declined to comment while Next and United Utilities were unavailable for comment.
More at eFinancialNews.com
Write to Luke Jeffs at luke.jeffs@dowjones.net