SPY Flash Crash - or Not

Interesting tidbit about the after-hours action:


Bloomberg:    

A software update at NYSE Euronext’s Arca platform triggered what appeared to be a 9.6 percent plunge in an exchange-traded fund that tracks the Standard & Poor’s 500 Index, a drop that would have erased $7.9 billion from one of the most popular securities in the U.S.Data published by the electronic venue at 4:15 p.m. New York time showed the SPDR S&P 500 ETF Trust at $106.46 compared with its opening price of $117.74. The apparent plunge in price involved 7.2 million shares in the closing auction on NYSE Arca, according to data compiled by Bloomberg at 4:30 p.m. The S&P 500 rose 0.7 percent to close at 1,184.71 today.

NYSE Arca will “bust” all the $106.46 trades, according to an e-mail from exchange spokesman Raymond Pellecchia.

Some in the "sphere" posited:

These trades shouldn't have been broken at all according the the SEC rules. The circuit breaker should kick in at a 10% move, about $106.80, but the trades should not be broken unless trades were 3% below that, about $103.24 (calculated from the day's high of $118.67).

SEC Rules:

The circuit breaker pilot program was approved in June in response to the market disruption of May 6 and currently applies to stocks listed in the S&P 500 Index. Trading in a security included in the program is paused for a five-minute period if the security experiences a 10 percent price change over the preceding five minutes. The pause gives the markets an opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion. The circuit breaker program is in effect on a pilot basis through Dec. 10, 2010.

For stocks that are subject to the circuit breaker program, trades will be broken at specified levels depending on the stock price:

• For stocks priced $25 or less, trades will be broken if the trades are at least 10 percent away from the circuit breaker trigger price.
• For stocks priced more than $25 to $50, trades will be broken if they are 5 percent away from the circuit breaker trigger price.
• For stocks priced more than $50, the trades will be broken if they are 3 percent away from the circuit breaker trigger price.

Personally, I don't think the trade busting was against SEC rules as there was a "software update" to blame.   Its hard not to be a conspiracy theorist knowing the govvie is doing whatever it can to support the market.