a fat finger and unintended consequences, from http://www.washingtonpost.com/wp-dyn/con...ST2010050606287
"....The NYSE has "circuit breakers" in place to pause the trading of stocks during a panic. But investors can also trade stocks on 10 electronic platforms that have sprung up in the shadows of the NYSE in recent years and generally do not stop unrestrained selling.
....Lou Pastina, the NYSE's executive vice president of operations, said the system set up by the SEC exacerbated problems on Thursday. When the sell-off started, the NYSE paused the electronic trading of several stocks and moved to traditional auctions of stocks with a middleman. The goal was to stem the panic and find rational buyers.
While the stocks were paused on the NYSE, sellers moved to other electronic exchanges such as Nasdaq and Instinet. So many sell orders came in at once that some stock prices listed on those platforms fell to near zero. Shortly after, trading of those stocks started up again on the NYSE at the paused prices, leading to wide disparity in costs among exchanges.
....In 2007, the SEC put in place new rules for how stocks are traded, led by then-Chairman Christopher Cox. The goal was to give investors more control over how their trades were executed and to guarantee the best price when they buy stocks. ....
The new SEC rules toppled the dominance of the NYSE. Trading of its own listed stocks dropped from 85 percent to 21 percent, said James Angel, a professor at Georgetown University's McDonough School of Business.
As a result, a single entity can no longer put a stop to panicked selling. The markets Thursday were a preview of what happens when other trading venues take over, he said.
Market officials and regulators are now unwinding millions of the trades that occurred on the electronic exchanges Thursday. As a result, the markets could be in for "an ugly" morning, Pastina said.
Nasdaq took the extraordinary measure Thursday of canceling all trades of stocks that occurred from 2:40 to 3 p.m. at prices 60 percent below the price listed prior to that period. The list of stocks affected is on its Web site. ..."