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NYSE Circuit Breakers Succeed, Halt Stock Spike


Yesterday Washington Post stock rose more than 10% in about one second, activating the new system that was created after the May flash crash.

This week the NYSE (NYX) rolled out its new circuit break system, and the good news is that it works.

The Financial Times is reporting that yesterday at 3:07 p.m. shares of Washington Post (WPO) were trading at $460 when orders for 400 and 200 shares were executed at $919.18 and then an order for 166 shares was priced at $929.18.

Immediately after the stock rose more than 10% it was halted; this is standard practice according to the new rules: If a stock rises or falls by more than 10% in five minutes it gets halted. These orders all took place within once second and were executed on the New York Stock Exchange's Arca electronic trading platform.

Ray Pellecchia, a spokesman for the NYSE Euronext, said, "There was a trading halt of five minutes and it was determined that there was an erroneous print for the 766 shares that traded." He went on to say that the NYSE is waiting to find out what caused the bad prints.

The idea to use circuit breakers on highly liquid large companies was regulatory response after the "flash crash." It's still unknown if the circuit breaks will perform as intended during a market crash, but so far so good.

How to Play It:

With trading now dominated by computers, the risk of another flash crash has never been larger. Yesterday was most likely another case of a "fat finger" and there will be more fat fingers. However, it does seem that regulators have done a good job of getting rules in place that will reign in panic.

Checking the daily chart of the NYSE Euronext, it looks like it bottomed near $27. Those who are bullish on the exchange could consider the stock here with a stop loss at $28.


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Other exchanges to consider are the CME Group (CME) and CBOE (CBOE), which just became public this week. For those who like to buy new highs, Intercontinental Exchange (ICE) made a new high yesterday.


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No positions in stocks mentioned.

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