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Core Molding Trades Canceled After Two-Second Plunge
About 200 trades in Core Molding Securities Inc. were canceled today after the stock plunged from above $4 to below a penny in two seconds after going untraded for the first 4 1/2 hours of the day.
The voided transactions took place between 2:19 p.m. and 2:20 p.m. New York time. NYSE Amex, the Nasdaq Stock Market and Nasdaq’s BX platform canceled all trades at or below $3.94 by about 3:30 p.m., according to statements on the exchanges’ websites. The stock closed yesterday at $4.21.
Shares of the Columbus, Ohio-based maker of fiberglass- reinforced plastics hadn’t traded at all today before the erroneous transactions occurred. About 6,390 shares of Core Molding change hands each day, according to the average of the last 30 days of data compiled by Bloomberg.
“It was a thin stock, and it’s a Thursday in August,” said Jamie Selway, a managing director at Investment Technology Group Inc. in New York. “It may have been an overly aggressive routing decision relative to the liquidity available. Sometimes someone tries to put an elephant through a garden hose and the results are bad.”
The exchanges started a pilot program in June to temporarily halt trading in individual stocks when they rise or fall at least 10 percent in five minutes. The circuit-breaker program is meant to prevent excessive volatility after the May 6 crash erased more than $862 billion in equity value in 20 minutes. The pilot is being tested on Standard & Poor’s 500 Index companies through December.
Core Molding isn’t in the index and therefore didn’t trigger a halt. While exchanges have proposed expanding the circuit breakers to companies in the Russell 1000 Index and about 300 exchange-traded funds, the SEC hasn’t yet ruled on those requests.
While a circuit breaker would have prevented most of the broken trades in CMT from occurring, the stock would still have traded down more than 10 percent, yielding an “ugly trade,” Selway said. Finding a way to avoiding mistakes in the first place would be better, he said.
“No one rational would sell the stock at a thousandth of a cent,” Selway said. “It isn’t rational price action.”