March 23, 2012

In a moment reminiscent of the 2010 flash crash, a software glitch on Friday sent BATS Global Markets shares crashing to a fraction of a cent in just a few seconds on what should have been the proudest day of its corporate history. As a result, trading of its shares was halted and the exchange withdrew its initial public offering.

The SEC’s initial findings pointed to a malfunctioning BATS server.

As BATS was about to begin trading, a bad trade for 100 shares of Apple also triggered a circuit breaker that stopped trading. BATS, which accounts for 11 percent of the trading volume in U.S. equities, later said it was investigating system issues with trading in symbols in the range "A" through "BFZZZ," which therefore included Apple and BATS.

"The fat finger trade that led to today's rapid 9.4% drop in Apple's share price is a high-profile example of a relatively under-the-radar everyday occurrence,” says John Bates CTO of Progress Software. “In fact, Physicist Neil Johnson and his colleagues at the University of Miami recently found more than 18,000 instances of ultrafast mini-crashes that have occurred over the last five years - nearly ten per trading day. While it is reassuring that the issue was caught by a single-stock circuit breaker, preventing a larger-scale crash, the fact remains that the firm that placed the erroneous order clearly lacked adequate risk controls such as real-time surveillance and monitoring. Hopefully this incident serves as a wake up call."

Concern surrounding high-speed trading and electronic exchanges first emerged after the May 6, 2010 flash crash, which saw the Dow Jones crash around 700 points before making a quick recovery shortly afterwards.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in ...