Potential Trading Errors Cause Market Free Fall

May 6, 2010 Updated: May 7, 2010

NEW YORK—Financial markets reported sharp losses on Thursday trading, including the largest-ever intraday point drop for the Dow Jones Industrial Average.

The Dow Jones Industrial Average plunged almost 1,000 points in the afternoon before paring its decline and ended down 347.80 points, or 3.2 percent, at 10,520.32. About $700 billion of U.S. stock market value was erased in less than 10 minutes, data compiled by Bloomberg showed.

The U.S. Securities and Exchange Commission said it’s investigating potentially erroneous trading involving multiple securities between 2:40 p.m. and 3:00 p.m. EDT, when the U.S. stock market tumbled the most. Nasdaq OMX Group Inc. announced that it will cancel trades that had a rise or fall in excess of 60 percent from the last trade in that security at 2:40 p.m., or immediately before that time, up until 3:00 p.m.

Trades of Accenture Plc that drove the second-largest technology consulting company’s stock price down more than 99 percent to a penny were canceled by the CBOE Stock Exchange, according to data compiled by Bloomberg.

A total of 19 trades of 100 shares each were executed at 1 cent in seven seconds from 2:47 p.m. to 2:48 p.m. in New York, a minute after the Dow average plunged by the most since the market crash of 1987, the data showed.

Eighteen of the trades were executed on the CBOE Stock Exchange and were canceled. The first trade that sent Accenture to a penny was executed on the Nasdaq Stock Market. That transaction has yet to be canceled, the data showed.

Accenture shares closed today at $41.09, down 2.6 percent in New York Stock Exchange composite trading.

The Dow average lost as much as 998.5 points, or 9.2 percent, before paring its drop. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest plunge since December 2008, before trimming its decline to 3.2 percent.

P&G Trading Error?

Consumer products maker Proctor & Gamble Co. (P&G), a component of the Dow, experienced a drastic midday drop that some reports say was related to a trading error. "We aren't in a position to comment on the details of an individual trade today, but we believe the trade was an error," the company told the Wall Street Journal.

P&G's shares appeared to hit a sudden rock-bottom of $39.37 in the afternoon. The stock later recovered and ended the day down around 2.3 percent to settle at $60.75.

Blue-chip Dow components rarely experience such volatile movements, leading some experts to blame trading errors for the drop. This came in the midst of a massive selloff on Thursday as investors were already worried about European sovereign debt.

Euro Plummets

The euro dropped to a 14-month low against the dollar on Thursday, settling at around $1.25 on investor speculation that European nations would have trouble controlling a spreading fiscal crisis. Yields for Spanish, Italian, Greek, and Portuguese bonds all increased with investors demanding higher interest rates.

Some policymakers are worried that the debt crisis contaminating the United States, mirroring the domino effect of the U.S. subprime housing crisis battered European markets in 2008. However the fiscal crisis would have immediately impacted other countries in Western Europe, before it reached American shores.

The drafting of a 110 billion euro (US$140 billion) bailout package from the International Monetary Fund for Greece failed to calm investor fears as Greek residents took to the streets all week, setting homes and cars on fire as rioters protested against harsh austerity measures proposed by the Greek Parliament to balance a huge budget gap.