AAs other exchanges were in discussions over whether to cancel trades in a number of stocks including Procter & Gamble Co. that traded erratically Thursday afternoon, the New York Stock Exchange touted its move to switch the trading in P&G to a human auction to prevent things from spiraling out of control
On other exchanges Thursday afternoon, shares of Procter & Gamble had tumbled as much as $22.79, or 37%, at one point, to $39.37. But because the stock fell below a key circuit-breaker level called the "liquidity replenishment point" or LRP on NYSE, the exchange stopped its own electronic trading in the stock briefly to go into "slow" mode. Under that mode, the designated market makers on the NYSE floor are given an opportunity to come in on the other side of an order at a price they have time to think about.
In this case, there was a sell order for P&G. Lou Pastina, executive vice president of floor operations for NYSE, said the auction ran for about a minute and 20 seconds, and then the trade went through at a price of $56 even though at that time the stock was trading far lower elsewhere.
"During that period other orders went to other markets and drove the price down to $39 and change. Buyers in those markets were probably very happy to buy, but the sellers weren't happy to sell," MR. Pastina said.
It is unclear whether the trades on other markets will be canceled. But an official at a competing exchange to NYSE said "in all likelihood, those trades will be broken."
The NYSE instated its LRP policy in 2006 in anticipation of the 2007 passage of Regulation NMS, which requires traders to transact on a trading venue at the lowest price rather than on a venue offering the quickest execution or the most reliability. When NYSE goes into slow mode, it bypasses Reg NMS.
"That's our human element that everyone in the world always questions," said Steven Grasso, director of institutional sales at Stuart Frankel & Co. on the NYSE floor. "As soon as we hit the LRPs, Reg NMS is bypassed, so we're going to slow to try to make sure we get the right price. It's then that we have true price discovery."
Mr. Grasso said once traders saw that someone wanted to trade P&G as low as $39.37, "then it just set on itself. When we go slow and the other markets trade through them, it all feeds on itself. To me it was a massive sell signal through the whole equity markets and it exacerbated at a certain point, and then it really get out of the control."
P&G wasn't the only stock that fell below its circuit-breaker level in Thursday's tumble, the NYSE official said. 3M Co. was another, as was Accenture.
Both P&G and 3M are components of the Dow Jones Industrial Average. In turn, their plunges prompted the Dow's levels to fall sharply; when traders saw the Dow at those levels, it exacerbated the decline as it fueled further fears.
The Dow closed down 348 points, or 3.2%, at 10519.79, but at its intraday low, the measure fell as low at 9869.62. P&G's shares closed down $1.41, or 2.3%, at $60.75. 3M closed down $2.35, or 2.7%, at $84.24.
Thursday's plunge raises the question over whether other exchanges should also put in place a similar system to the one NYSE has in place. While there are market-wide circuit breaker levels that would halt trading for an hour once the Dow falls at least 10%, exchanges other than NYSE don't have a circuit breaker system in place for individual stocks.
James Angel, Professor of Financeat Georgetown University's McDonough School of Business, said that's what the market needs.
He added, "as they say, an ounce of prevention is worth a pound of cure."What makes the desirt beautiful
First need your hand and forever can begin
I am slow walker but I never walk backward
love and be loved in return
I am your sunflower and you are my sunshine
http://www.sapphiresims2.com
http://forumhandball.com
http://mormonchic.websquirts.com
http://www.stuv-kphvie.at
http://www.sportbikes.ws
