Exchanges Cancel Trades That Sent Kraft Foods Up 29%
Erroneous trades that sent Kraft Foods Group Inc. (KRFT) up as much as 29 percent in the first minute of trading were canceled by exchanges, the latest incident to fuel scrutiny of the electronic infrastructure of U.S. markets.
The Nasdaq Stock Market and NYSE Arca broke trades in Kraft Foods Group Inc. at or above $47.82 executed in the first 60 seconds, the exchanges said in e-mailed statements. Kraft rose as much as 29 percent to $58.54 by 9:31 a.m. New York time, according to data compiled by Bloomberg. The stock ended the session down 1.2 percent at $44.87 as of 4 p.m.
“While it is difficult to say with any degree of certainty, it seems that this might be the case of mishandling a buy order through a ‘fat finger’ incorrect limit or using a far too aggressive order type or algo,” Mark Turner, head of U.S. sales trading at New York-based Instinet Inc., which accounts for almost 4 percent of daily U.S. equities volume, said in an e-mail. “In either case, the exchanges handled the error in accordance with their error guidelines.”
The Securities and Exchange Commission is studying ways to prevent electronic mishaps after a software error on Aug. 1 caused Knight Capital Group Inc. (KCG) to lose $440 million, almost bankrupting one of the largest U.S. market makers. Not every firm has the same commitment to ensuring systems are sound and regulators should review how often brokers evaluate their programs, NYSE Euronext executive vice president Lou Pastina said at an SEC roundtable yesterday.
Concern about electronic trading tactics has grown this year following problems with Facebook Inc.’s initial public offering and the cancellation of Bats Global Markets Inc.’s debut after the company could not get the shares to start trading on its own exchange.
The 168 trades at or above $47.82 that were later canceled began 18 seconds into the session and lasted 15 seconds, according to data compiled by Bloomberg. Almost 29,000 shares of Kraft were traded, the data show.
“Here we go again,” Larry Peruzzi, senior equity trader at Cabrera Capital Markets LLC in Boston, wrote in an e-mail. “Seems like another seam has been uncovered. Happy that Nasdaq reacted so quickly. Unhappy that these issues happen so frequently. Trades were canceled, but you have to feel some got hurt.”
Kraft shares took another sudden swing at the close. After trading at an average price of $45.88 from 3 to 3:58 p.m., the stock slipped as 2,372 trades covering 3.5 million shares occurred at prices of $45.40 or below in the closing minutes. The stock reached a session low of $44.83 at 3:59 p.m.
Kraft declined to comment on the trades, spokeswoman Leslie Sutton said in an e-mail.
Kraft Foods Group was listed on the Nasdaq this week after Kraft Foods Inc. split its businesses into two companies. Mondelez International Inc. (MDLZ), the global snacks unit, has brands such as Oreo cookies and Cadbury chocolate, while Kraft Foods Group is a grocery producer focused exclusively in North America, selling brands such as Planters peanuts and Kraft macaroni and cheese.
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