Sources: Fidelity Orders Caused NYSE Glitch
By Aaron L. Task
Editor at Large
6/28/2007 3:09 PM EDT
Sources have told TheStreet.com that an order from Fidelity Investments caused shares of Wyeth (WYE - Cramer's Take - Stockpickr - Rating), AT&T (T - Cramer's Take - Stockpickr - Rating) and Jeffries (JEF - Cramer's Take - Stockpickr - Rating) to be halted this morning on the New York Stock Exchange as specialists identified what they considered erroneous trades. The shares have since reopened.
Sources say Fidelity Investments was acting as the sponsoring broker for a third party, National Financial Services, which is a unit of the mutual fund giant.
Fidelity has not returned calls seeking comment.
My understanding is there was a 100 stock buy program at the open this morning that kept replicating itself, resulting in the following orders which raised the eyebrows of NYSE specialists:
50,000 orders of WYE for 800 shares each, a total of 40 million shares;
25,000 orders of AT&T for 1000 shares each, a total of 25 million shares;
6,000 orders of Jeffries for approximately 667 each, totaling 4 million shares.
It was the roughly four million share order for Jeffries that really caught the attention of the NYSE specialists and operations managers; the brokerage firm's average daily volume for the past 30 days is 3.4 million.
"Floor professionals recognized the problem before trading began, thus avoiding trading at incorrect prices on the NYSE," the exchange said in a statement.
"This speaks well to our market model as the specialists detected erroneous orders and prevented a lot of money from being lost," adds an NYSE spokesman.
NYSE officials declined to confirm who originated the order, but sources say Fidelity was contacted after specialists alerted NYSE officials to what appeared to be abnormally large trades in the three stocks. Fidelity and/or NFS confirmed the trades were made in error and the NYSE then proceeded with trying to restore imbalances in the three stocks. The process took longer than just canceling the "bad" trades because corresponding sell orders -- including 10 million for Wyeth -- came in prior to the open as the initial erroneous trades resulted in Wyeth indicated to open up $24.
The NYSE informed those would-be sellers that the buy orders were in error in the hopes the sales would be canceled; if not, those sales would have created an imbalance on their own. In addition, the stocks were trading off the exchange on electronic platforms.
Nasdaq Trades Cancelled
Sources say the Nasdaq has canceled trades of 2.5 million shares of Wyeth that traded "off market" prior to the NYSE halt. The Nasdaq has invoked rule 11890, which refers to "Clearly Erroneous Transactions."
One investor, a hedge fund manager who shorted Wyeth into this morning's pre-halt spike, is irate at having his trades canceled.
"This rule is focused on systemic problems like 'system errors' and has nothing to do with a dumb rumor driving a stock up," he says, noting some people were buying Wyeth this morning on speculation Pfizer (PFE - Cramer's Take - Stockpickr - Rating)was going to acquire them. "If someone made a 'fat finger' mistake, great," he says. "If other people turn it into rumors and trade on it, that's their problem. It happens every day."
The source requested anonymity, citing the possibility of legal action against the Nasdaq. "My counsel is looking into situation."
A Nasdaq spokesman says he will get back to me with a comment.
NYSE supporters will say this episode is a "victory for the humans," i.e. evidence that all electronic trading, as occurs on Nasdaq, may be faster but doesn't provide the safeguards as the Big Board's hybrid system. |
