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Curves Ahead: Mini "Flash Crashes" Continue

by Michael W. Stocker
Eyes On Wall Street |

It's hard to believe that nearly six months have gone by since the May 6, 2010 "flash crash" that unnerved the financial world. In an attempt to avoid any repeats of this crisis, regulators have implemented "circuit breaker" rules to temporarily halt trading and reset prices in the event stocks plunge suddenly.

In spite of this heightened regulatory interest, similar, albeit smaller, flash crashes continue to occur with alarming frequency. In fact, it has happened to more than a dozen individual stocks in the last six months.

For example, on September 27, 2010, Progress Energy's share price plunged almost 90% in an instant-dropping from $44.57 to $4.57. In effect, a robust company with 3.1 million customers and 11,000 employees suddenly seemed to be on the precipice of insolvency.

The circuit breaker rule worked on the New York Stock Exchange, but because the trading happened so fast, Progress stock still wound up in free-fall going down to $4.57 before other exchanges could catch up and stop trading. Dozens of trades were declared void, and after a five-minute halt, normal trading resumed. It is speculated that the trigger of this event was an erroneous electronic sell order.

Critics worry that the string of mini flash crashes points to deeper problems in the nation's stock markets. Some analysts say it is a sign that another big event is possible, if not probable.