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A trading error known as the “fat finger problem” at a main investment bank may have created the massive plunge and recovery in the US stock market.
The stock market plunge started just before 2.25pm regional time. After Proctor & Gamble’s stock dropped from $60 to $39 in the space of a minute, before bouncing back again, America's top 30 firms saw their share prices plunge 998.5 points. Almost 9%, wiped out billions in market value, in a white-knuckle 20 minutes.
The plummet eclipsed even the crashes seen after the markets reopened, following September 11, 2001, or when Lehman Brothers collapsed
Rumours swirled around the market that a trader had reportedly mistyped a "b" for billion instead of an "m" for million, in a trade of futures, involving Procter and Gamble.
Creating a chain reaction, automatic programs would have immediately gone into action, which ended up producing the largest intra-day plummet in the history of the Dow Jones Industrials average. The purpose of computer trading programs is to sell stocks at a specific level, in order for traders to keep their losses as low as possible, in the event of the market dropping. The instant selling only advanced to more selling and pushed the prices down even further.
Procter and Gamble later declared the plummet in its share price was a mistake, Market Watch reported. "We aren't in a position to comment on the details of an individual trade today but we believe the trade was an error," the company said in an emailed statement.
Zdnet reported Management consulting powerhouse Accenture also seemed to be afflicted by the hiccup. It opened at around $US41.78, but suddenly plummeted to US1c. The share recovered in the following few minutes, to end the overnight session at $US41.09.
CNBC was told by undisclosed sources that the firm that dealt with the incorrect Procter and Gamble trade was Citigroup. The bank said it had no proof of bad trade, but was looking into the matter.
The New York Stock exchange reported no system error.
All the major United States stock market indexes lost 3%in a day, which was a horrifying echo of the market turmoil of the 2008 financial crisis.
At the close of trade, while the Nasdaq was down 82.65 points (3.44 per cent) at 2319.64, the Dow had recovered to 10,520.32, down 347.80 (3.20 per cent). The Standard & Poors 500 Index was down 37.72 points (3.24 per cent) to 1,128.15.
Other sources are wondering whether the Greece riots are a cause for real concern on the stock markets.
The Nasdaq issued a statement two hours following the market closure, 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 sudden plummet. The NYSE also said it would cancel some trades on its electronic platform.
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