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Did typo trigger massive Wall Street selloff?

NEW YORK (AP) - A computerized selloff possibly caused by a
simple typographical error triggered one of the most turbulent days
in Wall Street history Thursday and sent the Dow Jones industrials
to a loss of almost 1,000 points, nearly a tenth of their value, in
less than half an hour. It was the biggest drop ever during a
trading day.
The Dow recovered two-thirds of the loss before the closing
bell, but that was still the biggest point loss since February of
last year. The lightning-fast plummet temporarily knocked normally
stable stocks such as Procter & Gamble to a tiny fraction of their
former value and sent chills down investors' spines.
"Today ... caused me to fall out of my chair at one point. It
felt like we lost control," said Jack Ablin, chief investment
officer at Harris Private Bank in Chicago.
No one was sure what happened, other than automated orders were
activated by erroneous trades. One possibilility being investigated
was that a trader accidentally placed an order to sell $16 billion,
instead of $16 million, worth of futures, and that was enough to
trigger sell orders across the market.
No one was taking blame, either. The New York Stock Exchange
said there was no problem with the Big Board's systems, and all the
markets were on a conference call with the Securities and Exchange
Commission.
Nasdaq issued a statement two hours after the market closed
saying it was canceling trades that were executed between 2:40 p.m.
and 3 p.m. that it called clearly erroneous. It did not, however,
mention a cause of the plunge.
The NYSE also said it would cancel some trades on its electronic
platform.
There were reports that the sudden drop was caused by a trader
who mistyped an order to sell a large block of stock. The drop in
that stock's price was enough to trigger "sell" orders across the
market.
The SEC issued a statement saying regulators are reviewing what
happened and "working with the exchanges to take appropriate steps
to protect investors."
Whatever started the selloff, automated computer trading
intensified the losses. The selling only led to more selling as
prices plummeted and traders tried to limit their losses.
"I think the machines just took over. There's not a lot of
human interaction," said Charlie Smith, chief investment officer
at Fort Pitt Capital Group. "We've known that automated trading
can run away from you, and I think that's what we saw happen
today."
The market was already wobbly because of fears that Greece's
debt crisis will undermine the economic recovery. Traders watched
television coverage of protests in the streets of Athens, and the
Dow was down 200 when the selloff began less than two hours before
the closing bell.
Around 2:40 p.m. EDT, the Dow was at 10,460, a loss of 400
points.
It then tumbled 600 points in seven minutes to its low of the
day of 9,869, a drop of 9.2 percent.
On the floor of the New York Stock Exchange, stone-faced traders
huddled around electronic boards and televisions, silently watching
and waiting. Traders' screens were flashing numbers non-stop, with
losses shown in solid blocks of red numbers.
Then the market bounced back, about as quickly as it fell. By
3:09 p.m., the Dow had regained 700 points. It then fluctuated
sharply until the close. The trading day ended with the Dow down
347.80, or 3.2 percent, at 10,520.
The Dow has lost 631 points, or 5.7 percent, since Tuesday amid
worries about Greece. That is the largest three-day percentage drop
since March 2009, when the stock market was nearing its bottom
following the financial meltdown.
At its lowest Thursday, the Dow was down 998.50 points in its
largest point drop ever, eclipsing the 780.87 lost during the
course of trading on Oct. 15, 2008, during the height of the
financial crisis. The Dow closed that day down 733.08, the biggest
closing loss it has ever suffered.
The impact of Thursday's gyrations on some stocks was
breathtaking, if brief. Stock in the consulting firm Accenture fell
to 4 cents after closing at $42.17 on Wednesday. It recovered to
close at $41.09, down just over $1.
Procter & Gamble, generally a stable stock, dropped as much as
$23, almost 37 percent, and rallied to close down only $1.41.
Many professional investors and traders use computer program
trading to buy and sell orders for large blocks of stocks. The
programs use mathematical models that are designed to give a trader
the best possible price on shares.
The programs are often set up in advance and allow computers to
react instantly to moves in the market. When a stock index drops by
a big amount, for example, computers can unleash a torrent of sell
orders across the market. They move so fast that prices, and in
turn indexes, can plunge at the fast pace seen Thursday.
Even if there were technical issues, concerns about the world
economy are running high.
The stock market has had periodic bouts of anxiety about the
European economies during the past few months. They have
intensified over the past week even as Greece appeared to be moving
closer to getting a bailout package from some of its neighbors.
"The market is now realizing that Greece is going to go through
a depression over the next couple of years," said Peter Boockvar,
equity strategist at Miller Tabak. "Europe is a major trading
partner of ours, and this threatens the entire global growth
story."
The Standard & Poor's 500 index, the index most closely watched
by market pros, fell 37.75, or 3.2 percent, to 1,128.15. The Nasdaq
composite index lost 82.65, or 3.4 percent, and closed at 2,319.64.
At the market's lows, all three indexes were showing losses for
the year. The Dow now shows a gain of 0.9 percent for 2010, while
the S&P is up 1.2 percent and the Nasdaq is up 2.2 percent.
At the close, losses were so widespread that just 173 stocks
rose on the NYSE, compared to 3,008 that fell. The major indexes
were all down more than 3 percent.
Meanwhile, interest rates on Treasurys soared as traders sought
the safety of U.S. government debt. The yield on the benchmark
10-year note, which moves opposite its price, fell to 3.4 percent
from late Wednesday's 3.54 percent.

(Copyright 2010 by The Associated Press. All Rights Reserved.)


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