Around two-thirds of all securities that had trades canceled during the extraordinary “flash crash” of May 6 were exchange-traded funds or exchange-traded notes, though the reasons for this aren’t yet clear, according to analysis from JoI’s parent Web site IndexUniverse.com.
In the heat of the selling, the Dow Jones Industrial Average fell by almost 1,000 points, or nearly 10 percent, before erasing around two-thirds of those losses by the time the market closed. The world’s biggest ETF, the SPDR S&P 500 (NYSE Arca: SPY), matched that fall, dropping as much as 10 percent in afternoon trading, before recouping much of that to close almost 4 percent lower at $112.94.
While ETF traders said stocks were poised for some sort of downside correction, particularly in view of riots in Greece in the wake of Standard & Poor’s downgrade of that country’s sovereign debt to junk status, the swift and unprecedented price action on May 6—between 2:30 and 3:00 p.m. EDT—clearly involved computers as opposed to panicked humans. Indeed, the slivers of salient time were in minutes, even seconds, IndexUniverse.com has found.
Of the 281 securities Nasdaq said had unusual trades that it will cancel, 193, or 68.7 percent of them, were ETFs or ETNs. The New York Stock Exchange reported a similar percentage of questionable trades involving exchange-traded products. The Big Board said 111 of 173 securities affected by questionable trades, or 64.2 percent, were either ETFs or ETNs. Both exchanges said that they would cancel spurious trades.
Nasdaq hasn’t admitted to any technological breakdown, but it ultimately decided to cancel all trades executed between 2:40 and 3:00 p.m. EDT that took place more than 60 percent away from the last consolidated print at 2:40 p.m. The exchange announced later that more than 10,000 trades had been canceled. It was not clear what methodology either exchange used to determine which trades should be eliminated.
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