Bulltick Capital Markets’s brokerage in Mexico was suspended from the stock exchange after sparking a market collapse by making what regulators said may be the worst trading mistake in the country’s history.
The IPC gauge of Mexican shares sank 2 percent in about three minutes starting at 2:45 p.m. local time on April 13, according to prices provided that day. The bourse has canceled the trades, which it said affected 13 companies.
“What happened is extremely serious and it’s not acceptable for these things to occur,” Guillermo Babatz, president of the National Banking and Securities Commission, said in a telephone interview today from Mexico City. “My impression is that this is the most significant erroneous trade in the history of the market.”
The Bulltick-triggered collapse is the latest example of financial-market technology sparking market disruptions. The Dow Jones Industrial Average briefly lost almost 1,000 points in the “flash crash” of May 6, 2010. Last month, Bats Global Markets Inc. canceled its initial public offering after a computer malfunction kept the Lenexa, Kansas, company from trading on its own platform and forced a halt in Apple Inc.
Review of Bulltick
Officials from the Mexican stock exchange and the National Banking and Securities Commission are visiting Bulltick’s brokerage today to review its systems, Alejandro Creixell, a managing partner at the firm, said today in a phone interview.
Mexico should seek a tool to identify when transaction sizes and prices are unusual, according to Babatz. The exchange’s circuit breaker mechanisms, which were strengthened in the wake of the U.S. flash crash, succeeded in preventing a deeper crisis, Babatz said.
“We’ll have to see what additional steps the authorities can take to prevent this type of thing,” Carlos Hermosillo, an analyst at Grupo Financiero Banorte-Ixe in Mexico City, said in a telephone interview. Last week’s plunge shows there are “holes” in the Bolsa’s maintenance of orderly trading, Hermosillo said.
The IPC had ended April 13 down 2.3 percent following the Bulltick errors. The benchmark gauge lost 0.6 percent for the day after the trades were voided. The index fell 0.2 percent at 3:07 p.m. today in Mexico City. Bolsa Mexicana de Valores SAB, the operator of the exchange, increased 1.4 percent.
Bulltick’s Mexico brokerage executed more sell orders by volume than any other Mexican brokerage on April 13. In the previous month, Bulltick was the 19st-most-active seller, according to data compiled by Bloomberg.
“Eight thousand basket orders got away from us with the wrong price,” Creixell said. “The system wasn’t configured to stop the orders by price but by volume. That was the problem.”
Bats priced 6.3 million shares on March 22 and was ready to begin trading a day later when one of its computers malfunctioned, triggering events that ended with the IPO’s cancellation. The “flash crash” almost two years ago erased $862 billion from stock values in less than 20 minutes.
Bulltick, a Miami-based investment firm that specializes in Latin America, entered the Mexican market as a brokerage in July 2008.
The Mexican exchange has been implementing technology to allow transactions to be executed more quickly. High-frequency trading, which uses programs to execute transactions more quickly, accounts for about 20 percent of cash equities transactions on the Mexican exchange, Javier Artigas, head of strategic planning for the exchange operator, said on a Feb. 22 conference call.
Technology in the testing phase at the exchange will give the exchange the capacity to process 200,000 transactions per second, according to a transcript of the call.
“If they hadn’t canceled the operations, it would have been catastrophic,” said Jorge Lagunas, who oversees about $200 million as a money manager at Mexico City-based Grupo Financiero Interacciones SA. “The Bolsa made the right decision. The other brokerages also did the right thing.”
Bulltick’s Creixell said the brokerage “didn’t do anything wrong” and will welcome regulators to help make sure its systems meet local standards. He declined to project when Bulltick may get permission to renew operations.
“This is very similar to what happened in the flash crash of May 2010,” he said. “It’s extremely clear that it was a technological error that could happen to anyone. It happened to Bats.”
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