A technical glitch at the New York Stock Exchange (NYSE) Monday morning led to trading being halted on 40 stocks due to inaccuracies around their share prices, most notably Berkshire Hathaway's class A shares (BRK-A) were incorrectly displayed as having plunged 99.9%.
Wealth! Anchor Brad Smith reports on the NYSE error and explains the market guardrails implemented to protect against "unnecessary volatility," including market wide circuit breakers (MWCB), limit up/limit down pauses (LULD), and the clearly erroneous (CE) trades.
For more expert insight and the latest market action, click here to watch this full episode of Wealth!
This post was written by Luke Carberry Mogan.
Video Transcript
Trading in shares of around 40 stocks was halted on Monday due to a technical glitch on the New York Stock Exchange.
An Nyse spokesperson attributed the tech issue to the securities information processor A Kas, a machine that consolidates data like bids, prices and trades into a single data feed.
Now, the issue was fixed shortly before noon on Monday and trading to the impacted stocks resumed.
Gamestop A MC, Chipotle and Berkshire Hathaway were all affected.
The error caused class A shares of Berkshire to plunge more than 99% and trading was halted in what the NC or the NYSE classified as an luld pause or a limit up, limit down pause, but let's back it up here.
What is a limit up, limit down?
And how does the stock exchange even detect these kinds of issues?
So let's break it down in our ever growing electronic world.
There are three market guard rails to help prevent what exchanges deem unnecessary volatility in stocks.
Now, the first is a market wide circuit breaker.
This halts all stocks when the market suffers excessive declines in one day.
For example, if the S and P 500 falls 7% in a day trading will stop for 15 minutes and then reopen.
Now, there are three total thresholds where at level three, if the S and P 500 falls 20% during the session, trading will be halted for the rest of the day.
Now, the COVID pandemic gives us a good example of this.
The markets saw four market wide circuit breakers during the COVID related sell offs that took place in March of 2020.
Now, the second guard rail for the markets is called limit up limit down.
This is designed to stop excess volatility in a single stock, sudden price movements beyond certain price bands for a stock will then trigger a 15 2nd limit state where trading pauses and if the stock comes back within the price ban, then trading will resume.
But if not, the stock is halted for five minutes.
Now, the final guard rail here is clearly erroneous trades which means there's an obvious error in terms of price number of shares or identification of a security.
After an incident in January of 2023 more than 4000 in trades and over 250 stocks were canceled due to a tech issue.
An investigation found the trades to be clearly erroneous.
So once trades are found to have been made during an erroneous period, exchanges will move to bust or cancel those orders.
Typically, there will also be a notification given as to whether the ruling is eligible for appeal.
So after a trading halt, always check the trader alerts published by exchanges to know whether your attempted trade may have been canceled and whether it is eligible for an appeal.
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