Apple investors sideswiped -- briefly -- by erroneous trade

Weirdness on a new stock exchange causes AAPL shares to briefly plunge 9.4 percent until authorities halt trading. Just another boring day in the life of a high-flying stock.

Apple shares briefly plunged just before 11 a.m. ET in a "flash crash" BigCharts (screenshot by David Hamilton/CNET)

Hope Apple investors had their seat belts fastened and their trays in the upright and locked position earlier today. Because they had quite the free-fall experience for a few minutes there -- even if it was a brief and seemingly accidental one.

Slightly before 11 a.m. ET, Apple shares suddenly plunged 9.4 percent, to $542.80, before an automatic "circuit breaker" cut in and halted trading. That was a drop of $57.69 from the opening price of $600.49.

Whew.

According to the WSJ, the culprit was BATS Global Markets, a stock-exchange rival to both the NYSE and the Nasdaq (subscription required for the link). But you'll have to bear with me for a moment to see how this all played out.

In a peculiar chain of events, BATS priced its own IPO last night and began trading this morning. Nasdaq halted trading in BATS shares after seeing "clearly erroneous" trades, the WSJ reported. Then, at 10:48 a.m. ET, BATS issued its own alert reporting "system issues in symbols range A through BF" -- a range, you'll note, that includes Apple (AAPL).

In other words, BATS went public -- and then trading on BATS went bats. In public.

Roughly 10 minutes later, at 10:57:36 a.m. ET, a single trade of 100 AAPL shares on the BATS exchange instantly pushed the stock down to $542.80. That's when the circuit breakers did their duty. The system worked. (Sorta.)

No harm was ultimately done, apparently. MarketWatch reports that erroneous trades were canceled, and trading in Apple shares resumed quickly. Still, that was one heck of a ride.

On a more serious note, the WSJ pointed out that the problems at BATS coincide with a Securities and Exchange Commission probe into high-speed computerized stock trading. The SEC action followed the May 2010 "flash crash" in the broader stock market -- one also kicked off by a single computerized trade, albeit one worth $4.1 billion, not $600,000.

Here's what the WSJ had to say about BATS and that SEC probe:

The BATS snafus come as the Securities and Exchange Commission is examining whether some rapid-fire trading firms such as Getco and Tradebot Systems Inc., another BATS investor, have used their close links to computerized stock exchanges like BATS to gain an unfair advantage over other investors. The wide-ranging probe, which was detailed in a front-page article Friday in The Wall Street Journal, is examining a number of electronic exchanges. The probe is at an early stage and there is no suggestion of wrongdoing by trading firms and exchanges.

Update, 12:58 p.m. PT: BATS was forced to withdraw its IPO today due to these and other technical snafus. Now that's embarrassing.

About the author

David Hamilton is the assistant managing editor of CNET News. He has been writing and editing business and tech coverage for about two decades -- the majority of that at the Wall Street Journal in both Tokyo and San Francisco. He is a two-time winner of the Overseas Press Club award and has written for numerous magazines and blogs, including Slate, Science, VentureBeat, CBS Interactive's BNET, California Lawyer and the New Republic.

 

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