Technical snag wipes out US utility firm’s worth
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New York, Nov. 9: BlackBerrys were buzzing inside Progress Energy in Raleigh, N.C. in a blink, the 102-year-old utility had been virtually wiped out on Wall Street.
For no apparent reason, Progress’s share price had plunged almost 90 per cent. In a matter of seconds, a company with 3.1 million customers and 11,000 employees had all but vanished on the nation’s stock market, and Progress executives had no idea why.
In the anxious hours that followed, the answers began to come clear: the harrowing plunge in the early afternoon of September 27 had been a mini flash crash — a small-time version of the stock market’s wild day last spring.
Since the Dow Jones industrial average fell about 700 points then largely recovered on May 6, setting the financial world on edge, similar flash crashes have occurred with alarming frequency in more than a dozen individual stocks.
Citigroup, Core Molding, the Washington Post Company — all have soared, plunged, and often both, in wild, seemingly inexplicable trading. An exchange-traded fund, a popular investment that is basically an index fund that trades like stocks, has also been given the flash treatment, although that was attributed to a software error. To some analysts, these mini flash crashes are a sign that another big one is possible, if not probable. Others say these abrupt reversals are simply the way modern, lightning-quick markets work, and that investors had better get used to it.
The crashes continue even as Washington regulators investigate the structure of modern markets and as a report traced the main trigger of May’s big crash to a poorly timed trade by a mutual fund in Kansas. Regulators have put in place circuit breakers to halt trading and reset prices in case stocks plunge. But some analysts fear that one day, these mechanisms could be overwhelmed.
And to corporate executives caught in the middle, it is all just plain hair-raising — and still puzzling.
That September afternoon, with fearful investors on the phone from New York, Mark F. Mulhern, Progress Energy’s chief financial officer, was told by the exchanges that it was all a mistake. A wayward keystroke by a trader somewhere had unleashed a powerful computer algorithm that had devoured Progress Energy’s stock in moments.
Progress Energy stock was trading at about $44.57 a share, and a dealer at an unidentified brokerage firm had entered a mistaken sell order into a computer that instantly drove the price to $4.57. Dozens of trades were declared void, and after a five-minute halt, normal trading resumed.
Mr Mulhern says he still does not really know what caused the sell-off — and worries what mini flash crashes like this one are doing to investors’ confidence in the stock market.
Mr Robert F. Drennan Jr., the vice-president for investor relations at Progress Energy, said he had reviewed the trading records and had noticed unusual trading activity in the run-up to the plunge.
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