The NYSE explained the trading error on Tuesday

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 Tuesday. Dozens of stocks opened significantly higher or lower than the previous day’s closing prices. Most were suspended shortly after the open under rules designed to reduce extreme volatility, and most reopened 5-10 minutes after the open at prices closer to yesterday’s closing prices.

Affected stocks include Altria, Mastercard, McDonalds, Uber, Wells Fargo, Verizon, Rio Tino, Shell, AT&T, Lilly, Mosaic, Wells Fargo, Nike, Nucor, Transocean, Prudential, 3M, Newmont Mining, Southern, Union Pacific names are included. , Sony, United Parcel Service, Altria, Valero Energy, Occidental Petroleum, Royal Dutch Shell, MetLife, Visa, Walmart and Exxon Mobil.

Owned and managed by the Senior Management Board Intercontinental exchangelater issued a statement saying, “All NYSE systems are currently operational.”

Shortly before 11:00 a.m. ET, the NYSE issued a second statement: “The Exchange continues to investigate issues with today’s opening auction. The opening auctions for a portion of the symbols did not take place. The Exchange is working to clarify the list of symbols. . Affected member firms Open May Consider Filing Misconduct or Rule 18 Claims.”

“Clearly Wrong” means that the NYSE will determine that the initial prices in the affected shares were not valid trades and the NYSE will determine that the subsequent price will be the “correct” opening price.

What’s going on?

Every day, stocks on the NYSE open at or around 9:30 a.m. ET. There is only one opening price determined by thousands of orders for individual stocks. These orders are aggregated into a single “book” for each stock that measures overall supply and demand. A single price is then quoted at the open sale and all orders are combined into a single opening “auction print”.

For whatever reason, it appears that many orders to buy or sell shares were not entered into the order book that set the opening price, and the opening bid was not printed on the affected shares.

The impact was that many stocks opened at prices far below Monday’s closing price due to very low volume and supply-bid imbalance.

To give two examples: Mosaic closed at $48.35 on Monday but opened at $40.29, down about 16%. It was discontinued almost immediately, but reopened at 9:43 am at $48.00.

Walmart closed Monday at $142.64 but jumped 12% to open at $159.88. It too was halted almost immediately and opened at $141.51 at 9:40 a.m. ET.

What will the NYSE do?

Initially, the NYSE indicated that affected companies could suspend all initial trading when it said, “Affected member firms may consider filing Plaintiff Error or Rule 18 Claims.”

Later in the day, the NYSE issued a third press release about the open trading disruption. The NYSE said 251 stocks were affected. These shares did not have an opening auction. As a result, many opened at wildly different prices. Many were immediately suspended due to volatility and reopened minutes later at prices close to the previous day’s close.

In a release, the NYSE said it canceled a small number of trades that occurred shortly after the open and marked other trades that did occur as “abnormal,” meaning they will remain standing but will not be counted for determination. high and low.

So what happened?

At the open each day, limit-up/limit-down (LULD) ranges are published immediately after the stock opens, which determine the price at which a stock will stop due to volatility. It is stopped if it trades above or below the bands. At least 84 stocks on the NYSE were halted within seconds of the open due to volatility that triggered LULD ranges.

The NYSE said all stocks affected by the LULD halted trading from the open at 9:30 a.m., and the first second traded outside the LULD ranges thereafter was canceled. They consider all stocks affected by LULD stops after 9:30:01 to 9:30:45 (9:30 and one second to 9:30 and 45 seconds) as “abnormal”. In abnormal trading, trading will be halted, but prices will not be affected by the high or low price of the stock.

This means that whether a trade is misreported depends not only on what the price is, but also partly on when the trade takes place. It appears that most traders who executed orders before 9:30:01 and traded outside of the LULD bands will see their orders cancelled. After 9:30:01, it looks like trading may stop.

A market watcher who read the release, who asked not to be named, described it as “confounding”.

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