Shares of the iPad maker Apple soared 40,000 per cent and traded at $100,000 apiece during the "flash crash" of 6 May, it was revealed yesterday. More details have emerged of the chaotic 20-minute trading period, when the US stock market fell 9 per cent before just as suddenly rebounding, including the fact that aberrant trades were by no means all in one direction.
The details point to a system-wide withdrawal of liquidity as the main contributor to the event, among numerous other factors. And they put the focus on the practice of electronic market-makers putting in "stub quotes" at extreme prices, not ever expecting them to be traded on.
Mary Schapiro, the chairman of the Securities and Exchange Commission, told a Congressional hearing yesterday that stub quotes are used by professional liquidity providers, who are given special trading privileges in return for agreeing to always provide buy and sell quotes for shares. Apple was one of five stocks in which trades were executed at the artificially high price; many others traded at the extremely low price of one cent.
The Dow Jones plunged 998 points that afternoon, as concerns about Greece spiralled into a wider sell-off in derivatives designed to track the market. Earlier declines triggered a wave of orders to sell at any price, and liquidity appeared to dry up in many stocks.