Friday, May 7, 2010

Computer Trading Errors: Undermining Investor Confidence?

Will the latest NYSE computer trading error that resulted in a thousand-point drop of the DOW in Thursday’s trading eventually undermine investor confidence in our post credit crunch world?

By: Ringo Bones

The incident is somewhat reminiscent of the Black Monday Stock Market Crash of October 19, 1987. The NYSE computer trading error that resulted in a thousand-point plunge of the DOW in Thursday’s trading that eventually resulted in the global stock sellout rout even though the global markets has since stabilized after that unfortunate May 6, 2010 trading fluke. Given that there is that on-going Greek debt crisis that threatens the euro, is this latest computer trading error looking more like the financial equivalent of the Cuban Missile Crisis of October 27, 1962?

Some old timers who have much at stake in this latest stock market crash probably have memories of being rudely awakened at 2 A.M. in to be prepped up for pre-breathing pure oxygen at 2 p.s.i. in order to purge excess nitrogen from their blood as they hurriedly slip on into their partial-pressure suit came flooding in. With the on-going Greek debt crisis being labeled as a “Contagion” by leading financial pundits, it is no wonder that the NYSE computer trading error can now be safely compared as the financial equivalent of the Cuban Missile Crisis of 1962. Even though the Greek debt crisis having very little – if nothing – to do with the latest NYSE stock market crash.

Unfortunately, the resulting stock price plunge had resulted in a panicky knee-jerk reaction in the global markets. Imagine Exxon Mobil stocks suddenly plunging from 66 US dollars a share to 58, or Procter and Gamble suddenly falling from 62 US dollars a share to 39, while Accenture PLC was probably the worst affected after their shares priced at 42 US dollars each suddenly becoming into penny stocks. When a Blue Chip-priced stocks suddenly turning into penny stocks in a single trading session managed to raise alarms that there in something terribly wrong – as in a major computer trading error.

Preliminary investigations have revealed that a certain overworked sleep-deprived trader manning a certain computer workstation at the NYSE has been blamed for mistakenly typing in a “B” for billion instead of an “M” for million. The resulting pricing error had made a trillion dollars worth of funds virtually disappear into thin air. Looks like humans are still the be-all-end-all link of our contemporary heavily computerized global stock markets. But will this weak link undermine investor confidence in our post global credit crunch world?


VaneSSa said...

Looks like my mom will be thanking you yet again for saving her investment portfolio. Lets just hope that this Thursday May 6, 2010 trading fluke is just that - a trading fluke that made a trillion dollars vanish into financial thin air. With regards to the Black Monday Stock Market Crash of October 19, 1987, was the circumstances behind that notorious trading incident somewhat similar to the May 6, 2010 trading fluke?

Je M'Apelle Ja'Nelle said...

Accenture Plc shares going from 42 US dollars per share to a penny per share! Is this October 19, 1987 all over again?

April Rain said...

The May 6, 2010 Stock Market Crash highlights the need for financial regulators - like the US Securities and Exchange Commission or SEC - to keep up with the ever-galloping trading technologies like e-trading / on-line trading.

Ringo said...

Strangely according to the latest reports on this incident, forensic accounting experts has yet to uncover the primary cause / incident that allowed the May 6, 2010 Stock Market Crash to happen.

April Rain said...

Hey, it is now the First Anniversary of the "Flash Crash" computerized flash commodities trading fiasco. I just hope it won't happen again for the sake of my IPOs.

Ringo said...

Other than computer trading errors that lead to the "accidental" Flash Crash of one year ago, it was the recent announcement of the death of Osama Bin Laden that lead to the rather steep share-price plunge of the most speculated commodities - like crude oil for example.