Progress Energy Stock Halted by U.S. Volatility Curb
Progress Energy Inc. stock trading was halted for five minutes following a 90 percent decline that triggered a circuit breaker implemented after the U.S. equity market crash in May.
The plunge was caused by an “inaccurate limit price entered by a trading firm,” according to a statement from Nasdaq Stock Market. Progress Energy exceeded $44.50 at 12:57:52 p.m. before more than 100 transactions during the same second drove it to $4.57, data compiled by Bloomberg show. More than 50 trades were canceled on Nasdaq, Bloomberg data show. The stock changed hands for $43.90 following the pause.
The decline triggered a curb implemented by U.S. exchanges after the May 6 stock market crash erased $862 billion in less than 20 minutes. The pause lasts five minutes for companies in the Standard & Poor’s 500 Index and Russell 1000 Index as well as 344 exchange-traded funds once they rise or fall at least 10 percent within five minutes.
“Given that it only occurred on Nasdaq, it could have been a fat finger trade or a fat algo making a stupid mistake,” said James Angel, a finance professor at Georgetown University in Washington. Algorithms are trading strategies used to break up larger orders into smaller pieces.
First Decline
Since the highest price for Progress in the five minutes preceding the halt was $44.61, the stock completed a 10 percent slump when it traded at $40.08 -- though that trade and about 80 more were executed before the circuit breaker was triggered.
“When an individual stock trading pause is triggered, transactions could occur before the trading pause is fully implemented on all of the exchanges,” the SEC said in its approval of the rules on Sept. 10. When that happens, the exchanges would review “all transactions triggering an individual stock trading pause and subsequent transactions that may occur before the trading pause is in effect.”
Based on rules for when errant orders are canceled, exchanges must void trades that occur 5 percent lower than the trigger price for the circuit breaker for a stock priced between $25 and $50. Nasdaq canceled trades that took place before the circuit breaker kicked in that were $38.10 or lower.
‘Inaccurate Limit’
“The NYSE-listed stock was trading on the Nasdaq Stock Market when an inaccurate limit price was entered by a trading firm,” said Silvia Davi, a Nasdaq spokeswoman. “No trades were routed to other market centers. Approximately 57 trades have been canceled.”
Progress Energy, a Raleigh, North Carolina-based electric utility, became the 10th security paused by the volatility circuit breaker, following Seagate Technology Plc on Sept. 21, Nucor Corp. on Sept. 14, Intel Corp. on Aug. 27, Micron Technology Inc. on Aug. 5, Cisco Systems Inc. on July 29, Genzyme Corp. on July 23, Anadarko Petroleum Corp. on July 6, Citigroup Inc. on June 29 and Washington Post Co. on June 16.
Exchanges are required to avoid executions at prices inferior to the best bid or offer on any other venue. Once that so-called protected quote is removed, exchanges can trade the remainder of an order they receive on their own market even if other venues have better-priced bids or offers, depending on whether the customer is buying or selling the stock. The rules for when exchanges must route an order to another market were adopted in 2005 and went into effect in 2007.
“It looks like it’s a fairly thin stock,” Angel said about Progress Energy. “So it would seem to be the kind of situation where one big trade blasts through all the liquidity in the book.”
To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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