How the NYSE Trading Floor Prevented a Big, Erroneous Trade Today

| About: NYSE Euronext (NYX)

Now and then, I talk about how having market professionals interact on a physical trading floor (as well as interacting electronically) not only helps price discovery but also provides a needed check against trading errors. A perfect example of this occurred this morning.

My colleagues tell me that shortly before the open, a customer erroneously sent tens of thousands of orders in a lightly traded security -- one that on average trades fewer than 1,000 shares a day on the NYSE (NYSE:NYX). Had our market been completely electronic, those orders would have just ripped though the stock, taking the price down until the mistake was discovered later, then probably being cleaned up with hundreds or thousands of trade cancellations.

Instead, a designated NYSE market maker spotted the aberrant orders before he opened the stock, and we held the opening until the firm could be contacted and the orders cancelled, without a single aberrant order being executed here. The security opened within the hour with no price impact.

When you're a primary listing market, it's helpful to have the added feature of human beings with affirmative obligations for ensuring fair and orderly markets, adding liquidity and a watchful eye when needed.

Hat tip to Frank DeGarcia, Todd Abrahall and Nick Brigandi for filling me in on this.

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