NEW YORK — The biggest intraday point drop ever in the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said on Thursday.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.
North American markets that had started the day on a positive note went into free fall Thursday afternoon, with the Dow Jones index in the U.S. down nearly 1,000 points at one point and Canada’s S&P/TSX losing more than 450 points, before quickly recovering.
All three U.S. indexes were briefly down 6% or more. The Dow Jones Industrial average fell 8.8%, its biggest percentage drop since 1987.
The CBOE Volatility Index, Wall Street’s so-called fear gauge, rose 27% to $31.68, the highest since November 2009.
Canada’s benchmark stock index had rebounded to a loss of 55.99 points, or 0.47%, at 11,819.14 as the close approached, with the financials and energy sectors taking the biggest hit.
In the U.S., the Dow Jones industrial average was down 342.51 points or 3.15% to 10,525.61 at the closing bell, while the Nasdaq composite fell 79.65 points or 3.32% to 2,322.64.
“This isn’t what I would consider rational selling,” David Cockfield, a money manager at MacNicol & Associates Asset Management Inc. in Toronto, told Bloomberg. “This is either program trading or a pure emotional approach. A lot of people have been expecting a correction, and after three or four days of down markets, people said, “˜It’s here; I’m going to exit.’”
Speculation on the drop ranged from computer glitch to a so-called "fat fingers" error to automated trading that was triggered somewhere around 10,600 for the Dow.
"The way it plunged so fast and then came roaring right back makes you think either a tons of stops got hit or somebody’s automated trading program kicked in," said Colin Cieszynski, market analyst at CMC Markets Canada.
The freefall brought on a firestorm of blogs and tweets.
"What the hell was that? I blame automated trading," wrote one Tweeter.
Business Insider’s Joe Weisenthal said rumour was "big fat fingers" caused the crash.
"Major US bank had an order to sell $15 mln of S&P e-mini contracts. Accidentally sold $15 bln…," he wrote on his blog.
"So who was it?"
The New York Stock Exchange said Thursday there were no system errors during the volatile trading.
“There were a number of erroneous trades,” NYSE spokesman Rich Adamonis told Bloomberg in reference to the markets’ afternoon drop. “Our guys just told me Nasdaq is investigating the erroneous trades.”
Nasdaq confirmed it is investigating potentially erroneous transactions involving multiple securities executed between 2:20 and 3 p.m.
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