The Dow Jones Industrial Average plummeted almost 1,000 points in a half-hour Thursday, the cause of which appears to be human error exacerbated by a market made more volatile by high-speed trades and automatic sale orders that are measured in milliseconds.
According to published reports and sources a trader attempting to short-sell 16 million shares of S&P 500 stock entered a "b" for billion instead of an "m" for million. That error sent high frequency traders scurrying, causing liquidity to vanish.
The Dow fell as low as 9,867 points from its previous day's close of 10,868 before rebounding to 10,464 points by the close of the market Thursday.
Chris Nagy, managing director of order routing strategy at TD Ameritrade, was moderating a panel on market structure at a trade operations conference at about 2 p.m. EST, when he was notified of the market drop.
"It seemed a little suspicious at the time. That's our conclusion," Nagy said. "But we've warned the SEC [U.S. Securities and Exchange Commission] of a lot of the problems created with some of the high-frequency trading in the marketplace."
"When you have some algorithmic error, which this is appearing to be, the impact of that trade caused the pricing in the markets to collapse," Nagy continued.
For example, Nagy said some of TD Ameritrade's client orders, where the normal price of the stock was $60, received trade fulfillments at .11 cents. Proctor and Gamble share prices also dropped almost 37% before rebounding.
In another example, The Wall Street Journal's MarketBeat blog reported Accenture's stock price plummeted from over $40 at 2:47 p.m. to $.01 at 2:48 p.m. Thursday.
"So clearly there was a flaw in the system and there were some algorithmic events that triggered a much more cataclysmic event in the marketplace," Nagy said.
At the time of the drop, the Dow had already dipped about 300 points due in large measure to the economic meltdown in Greece.
An SEC spokesman said the regulatory agency had "no immediate" comment on Thursday's market drop. Nagy said, however, that the SEC has been asking brokerages for comment on the market volatility caused by high-speed trading platforms.
"I think this certainly this escalates the issue and tells us The Securities and Exchange Commission is going to have to move in a more expedient fashion to rectify some of the current symptoms we have in the marketplace...," he said.
TD Ameritrade recently sent a comment letter to the SEC warning it of potential problems created by high-frequency trading.
"The concern there is that this really left our retail clients exposed. While we didn't see any panic with the retail client, we saw a lot of pricing inaccuracies," he said.
"We're still trying to get resolution for that. In fact, I feel we'll probably be seeking resolution for the next couple of days."
Late last year, the SEC began reviewing the practice of "flash" trading, where some large financial companies get access to stock trading information milliseconds before that information is made available to the trading public.
Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed . His e-mail address is firstname.lastname@example.org.