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'Clearly erroneous' trades to be canceled after some stocks dive to pennies in market mayhem

May 6, 2010 |  8:10 pm

How insane a day was it on Wall Street?

The Dow Jones industrial average briefly was down as much as 998 points, or 9.2%, at its session low of 9,870 on Thursday, before rebounding to close at 10,520.32, off nearly 348 points (3.2%) for the day.

But as computerized trading systems ran wild on the sell side -- and buy-side bids suddenly disappeared -- some big-name stocks traded for just pennies at their lowest points of the day.

Shares of utility Exelon Corp., for example, were trading at around $40 shortly before 11:45 a.m. PDT --  then suddenly dived to 41 cents. A few minutes later the stock was back to $40. It closed at $41.86, down $1.83 for the day.

Boston Beer, which brews the Sam Adams brand, fell from $56 to as low as 1 cent, then soared back to $56, before closing at $55.82, off 37 cents.

The rock-bottom trading prices clearly weren’t meant to be. Computers were executing sales in all-electronic markets based on the instructions that were programmed into them, but no human would have wanted those programs to be followed at mere penny prices. In the space of a few minutes, the machines just ran away with things amid a surge in sell orders and a dearth of buy orders.

By late in the day, major electronic markets including Nasdaq and NYSE Arca announced they would cancel stock trades that occurred between 11:40 a.m. PDT and noon PDT if the prices were 60% higher or lower than the last price quoted at 11:40 a.m. NYSE Arca said those trades were "clearly erroneous."

For lists of stocks subject to canceled trades, see the Nasdaq press release and the NYSE Arca release.

-- Tom Petruno

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