Editorial Maze Cartoons

Maze Cartoon -  Effects of Human Error on Stock Market

The Dow Jones Industrial Average plummeted almost 1,000 points in a half-hour today, the cause of which appears to be human error exacerbated by a market made more volatile by high-speed trades and automatic sale orders that are measured in milliseconds.

Sources said a trader attempting to short-sell 16 million shares of S&P 500 stock, possibly involving Proctor & Gamble profits, entered a "b" for billion instead of an "m" for million. That error sent high frequency traders scurrying, causing liquidity to vanish.

The Dow fell as low as 9,867 points from its previous day's close of 10,868 before rebounding to 10,464 points by the close of the market today.

Chris Nagy, managing director of order routing strategy at TD Ameritrade, was moderating a panel on market structure at a trade operations conference at about 2 p.m. EST, when he was notified of the market drop.

"It seemed a little suspicious at the time. That's our conclusion," Nagy said. "But we've warned the SEC [U.S. Securities and Exchange Commission] of a lot of the problems created with some of the high-frequency trading in the marketplace."

"When you have some algorithmic error, which this is appearing to be, the impact of that trade caused the pricing in the markets to collapse," Nagy continued.

For example, Nagy said some of TD Ameritrade's client orders, where the normal price of the stock was $60, received trade fulfillments at .11 cents.

In another example, The Wall Street Journal's MarketBeat blog reported one stock price on Accenture's platform plummeted from over $40 at 2:47 p.m. to $.01 at 2:48 p.m. today.

"So clearly there was a flaw in the system and there were some algorithmic events that triggered a much more cataclysmic event in the marketplace," Nagy said.