Archipelago Exchange draws ire of Nasdaq on trade resumption
December 9, 2003
BY DAVID ROEDER Business Reporter Advertisement
The Chicago-based Arch-ipelago Exchange drew criticism Monday from Nasdaq for defying a trading halt in a stock that registered a brief but calamitous price swing.
The Nasdaq Stock Market Inc. imposed the nearly one-hour halt Friday in business involving Corinthian Colleges Inc. after a computer glitch repeatedly caused sell orders for the stock to course through electronic trading networks. During a 12-minute interval, the stock lost about a third of its value, to a low of $38.97 a share, when no news from the company justified the falloff.
Nasdaq imposed the halt at 9:58 a.m. Chicago time and lifted it at 10:55 a.m. Archipelago put a hold on the stock with Nasdaq's but lifted it at 10:19 a.m., meaning that it became the exclusive market for Corinthian Colleges shares for 36 minutes.
The limited session might have compounded traders' losses because Nasdaq later nullified orders that were executed between 9:46 a.m. and 9:58 a.m., "busting'' the trades, as brokers call it.
The action meant that those who bought shares and sold them later in the day in hopes of a fast profit instead were counting losses.
Some brokerages had to buy the shares after the stock had returned to normal levels to make good on its earlier sell orders.
Corinthian Colleges shares regained most of their lost ground Friday, but the session saw volume of nearly 12 million shares for a stock that seldom trades above 700,000 shares a day.
Nasdaq Senior Vice President Bethany Sherman assailed Archipelago's action. "Nasdaq was acting in the best interest of investors,'' she said. "We believe that when markets act in coordination, risk to the customer is reduced.''
Nasdaq has asked the Securities and Exchange Commission to require that Archipelago and other electronic markets abide by its trading halts.
Archipelago, however, said it determined a cross-market trading halt was unjustified. Dale Carlson, spokesman for the Pacific Exchange, which provides regulatory services for Archipelago, said Nasdaq can impose a cross-market trading prohibition only for "a system failure affecting everybody. That wasn't the problem here. The Arca [Archipelago] market was fair and orderly.''
Several Chicago brokers, whose livelihoods are threatened by computerized markets such as Archipelago, said the incident shows the limitations of trading conducted via machines. "It's one of the problems when you take people out of the equation in trading orders,'' said David Herron, chief executive of the Chicago Stock Exchange, which does no business in Corinthian Colleges shares.
However, Herron said he believes Archipelago was within its rights to resume trading early.
Officials said the glitch has been traced to order-entry software licensed by Instinet Group Inc., another trading network.
In Monday's trading, Corin-thian Colleges shares rose 29 cents to close at $57.09 on volume of more than 1.4 million shares.
Carlson said Archipelago will ask the SEC to investigate Nasdaq's trading halt.
An SEC order issued in May appears to give Nasdaq the unfettered right to stop trading over possible "misuse or malfunction of electronic systems.'' But SEC spokesman John Heine said the order does not give Nasdaq authority over competitive exchanges.
Corinthian Colleges is based in Santa Ana, Calif., and operates colleges and continuing education centers in the United States and Canada. |
