Fallout from a single stock Flash Crash


Joe Saluzzi of Themis Trading told MarketWatch that, "Plain and simple, Anadarko suffered a flash crash."

Saluzzi is an often-quoted expert who has some big misgivings about our current market structure. A bevy of rules have passed since the Flash Crash of May 2010, and people would like to believe that such crashes are no longer likely, even the single stock variety. But when a big, actively traded stock like Anadarko Petroleum plunges from roughly $90 a share to a penny in just a few seconds, you do have to wonder. It's unclear what prompted the crash. In one view, the selling pressure emanated from options traders.

But no matter the origins, there are some issues here. For one thing, after the SEC decided to switch from a single stock circuit breaker system to single stock price bands (limit up/limit down), weren't these sorts of crashes supposed to go away?  Saluzzi explains that the price bands are being rolled out in stages and that Anadarko remains uncovered by the new rules. That makes sense.

But there's another issue that's a big head-scratcher. Weren't stub quotes banned by exchanges in the wake of the 2010 Flash Crash? They absolutely were. But Nanex has suggested in the past that some firms are interested in various workarounds.

In any case, it's unclear how a trade in Anadarko was executed at a penny. Someone may have legitimately entered an order at that price. But it's more likely a stub. Hopefully, more information on this will be available in the near future.

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