Spain's benchmark Ibex 35 Index was halted for nearly five hours
earlier Monday after a trading glitch caused trading in Madrid to
stop. The Bolsas y Mercados Espanoles SA, the company that oversees
the stock exchange, could not comment on the nature of the glitch
and only said that trading had been halted due to a technical
Investors have almost become accustomed to trading glitches,
many of which go without regulators, investigators and even the
companies knowing exactly what happened. Even though the SEC
published a report of the flash crash of May 2010, many don't trust
the official reason and to this day there is no agreed upon cause
of the crash. During the crash, the Dow Jones Industrial Average
plummeted nearly 1,000 points and some stocks lost nearly all of
their value due to errant trades. The flash crash led to the
implementation of single stock circuit breakers.
Early in 2012, there were also a few stocks that traded in wild
patterns for a matter of seconds, forcing the SEC to cancel trades
in stocks such as Apple (NASDAQ:
). Those errant trades preceded the failed IPO of Bats, the
nation's third largest exchange. In an attempt to launch an IPO on
its own exchange, the stock flash crashed to a price of $0 in a
matter of 700 nanoseconds, or effectively "in an instant".
Markets are now focused on the trading glitch that nearly forced
Knight Trading Group (NYSE:
) to go bankrupt and this glitch only adds to the debate of the use
of high frequency trading (HFT) and algorithmic trading. The debate
over HFT has been raging for years now and eventually the debate
needs to be held in a public forum. HFT adds liquidity and can
reduce bid/ask spreads in markets, making buying or selling stocks
more efficient for individuals. However, HFT can also create
volatility, as seen by these glitches and flash crashes, which can
make markets unfair to individuals who cannot exit positions as
quickly as computers can.
The Spanish Ibex has since resumed trading and shares rallied
approximately 1.6 percent. The exchange operator is still
investigating the cause of the glitch.
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