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Computer Problem Caused Price Errors on NASDAQ
buckthorn writes "An article running on Yahoo News states: 'A computer problem at an unidentified stock trader caused erroneous, exaggerated prices -- some as high as $950 per share -- to be posted to the Nasdaq Stock Market Friday morning for 1,680 different stocks, a spokeswoman for the Nasdaq said.'"
I am working for local internet shopping centre. Most prices are generated automatically based on wholesale prices and competitor retail prices. Sometimes glitches in this process lead to funny prices on website. When this happens sales reps are ready to kill us IT guys.
working for a large bank on a program trading system (yes it runs on linux) automating orders on behalf of clients this is the sort of thing that gives us the cold shivers.
one coding error can suspend the trading of a major stock, or worse as in this case move the price miles from where it should be.
theoretically the exchanges shouldn't allow you to do this. some work by suspending automatically and restarting with an auction, some work by suspending it. locking you out and fining you loads of cash. this costs you big as nobody else can trade that stock through you for a while. thats really expensive - the lost business.
when your taking in client orders and trading them automatically and you recieve orders via say FIX.
yes you do lots of checks with vol, movement on the day, movement since the close, momentum etc.
but how well do these checks work when your market data feed has gone down (or worse gone wrong) or even gone down, but the heartbeat process is still pinging so you think you have a good price?
but i guess sometimes we get it wrong just like anywhere else. this is just a rather high profile and embarrassing example.
still they won't do it again (for a while)
In the extended hours markets, some traders post bids or offers at outrageous prices, hoping someone will make a mistake. They will offer to buy some stock for $0.02 per share or sell some stock for 200.00 per share (that normally trades $20 a share) in hopes that someone screws up. The low cost of participating in an electronic market makes it easy to post these orders.
The real lesson is that stocks don't really have "a price" in a traditional sense. (At best, the price on the last transaction serves as a proxy, but is no guarantee of getting that price in the future). In reality, stocks have both a bid and an ask price. For thinly traded stocks (especially in the off-hours), the bid-ask spread can be very very large.
Buyer (and seller) beware.
Two wrongs don't make a right, but three lefts do.
OK, clearly hardware faults can cause data corruption
In the case of hardware failure, it would be the person implementing the systems who made the error, for not adequately accounting for this type of problem (e.g. RAID, clustering, etc).