A trader works on the floor of the New York Stock Exchange.
Peter Kramer | cnbc
The New York Stock Exchange faced technical problems at the open on Tuesday. Dozens of stocks opened at prices significantly above or below their previous day’s closing price. Most were halted shortly after the open under rules designed to reduce extreme volatility, and most reopened five to 10 minutes after the open at prices very close to yesterday’s closing prices.
Affected stocks include Altria, MasterCard, McDonald’s, Uber, Wells Fargo, Verizon, Rio Tino, Shell, AT&T, Lilly, Mosaic, Wells Fargo, Nike, Nucor, Transocean, Prudential, 3M, Newmont Mining, Southern, Union Pacific. Big names are involved. , Sony, United Parcel Service, Altria, Valero Energy, Occidental Petroleum, Royal Dutch Shell, MetLife, Visa, Walmart and Exxon Mobil.
Who owns and operates Big Board? intercontinental exchangelater issued a statement saying, “All NYSE systems are currently operational.”
Just before 11:00 a.m. ET, the NYSE issued a second statement: “The exchange continues to investigate issues with today’s initial auction. In a subset of symbols, the initial auction did not take place. The exchange is updating its list of symbols. “Affected member companies may consider filing manifestly flawed or Rule 18 claims.”
“Apparently erroneous” means that the NYSE will determine that the opening prices of the affected shares were not valid trades and the NYSE will determine that a subsequent price will be the “correct” opening price.
What happened?
Every day, stocks on the NYSE open at or around 9:30 a.m. ET. There is only one initial price, which is determined by thousands of orders to buy and sell individual stocks. These orders are aggregated into a single “book” for each stock that assesses overall supply and demand. A single price is then quoted at the open and all orders are aggregated into a single opening “auction print”.
For whatever reason, it appears that many orders to buy and sell the stock did not enter the order book that sets the opening price, and those affected shares did not appear in the initial auction print.
The effect of this was that many stocks opened in very low volumes and at prices far away from their closing prices on Monday due to supply-demand imbalance.
To give two examples: Mosaic closed at $48.35 on Monday, but opened at $40.29, a decline of about 16%. It was halted almost immediately, but reopened at $48.00 at 9:43 am.
Walmart closed at $142.64 on Monday but opened at $159.88, up 12%. It was also halted almost immediately and reopened at $141.51 at 9:40 a.m. ET.
What will NYSE do?
Initially, the NYSE indicated it might close all early trades of the affected companies when it said, “Affected member companies may consider filing for manifest error or Rule 18 claims.”
Later in the day, the NYSE issued a third press release regarding the open trading irregularities. The NYSE said 251 stocks were affected. These shares did not hold preliminary auction. As a result, many opened at very different prices. Many were immediately halted due to volatility and reopened several minutes later at prices near the previous day’s close.
In the release, the NYSE indicated it was canceling some trades that occurred immediately after the open, and marking other trades as “abnormal”, meaning they would be left standing but pending determination. Fluctuations will not be counted for purposes.
So what?
Every day at the open, Limit Up/Limit Down (LULD) bands are published immediately after the stock opens that determine at what price the stock will be stopped due to volatility. If it trades above or below the band, it is placed at a stop. At least 84 stocks on the NYSE halted within seconds of the open due to volatility, triggering LULD bands.
The NYSE said that all stocks affected by the LULD interruption that traded from the open at 9:30:00 and traded outside the LULD band thereafter are being canceled. They are considering marking as “abnormal” all stocks affected by the LULD halt from 9:30:01 to 9:30:45 (from 9:30 and one second to 9:30 and 45 seconds) . In unregulated trading, trading will continue but prices will not affect whether the stock will go up or down.
This appears to mean that whether or not a trade is declared invalid and no longer valid depends partly on when the trade occurs, not just what the price is. It appears that most traders who executed orders just before 9:30:01 and traded outside the LULD band will have their orders cancelled. After 9:30:01, it appears deals may be on hold.
One knowledgeable market observer, who read the release and asked to remain anonymous, described it as “confusing.”
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