Rogue trade spurs Nasdaq spike

New York's Nasdaq market is heavily computerised

Concerns over the increasing computerisation of stock market trading have been underlined, as a rogue trade caused a false blip on the Nasdaq exchange.

Traders were puzzled when Nasdaq's composite index jumped by 4% for no apparent reason at around 10am New York time.

The cause, it emerged, was an order for shares in Exodus, a web-hosting company, which was entered into the exchange's system at $100 per share, while the market price was just 17 cents.

Although Exodus is a tiny firm, the apparent 59,000% jump in its shares triggered a series of "buy" orders in other trading systems, many of which are programmed to respond automatically to market movements, and dragged up the entire market index.

Ironically, Exodus filed for Chapter 11 bankruptcy on 26 September.

To err is human...

There is still no word over who was responsible for the mistake, or on how any resultant losses will be resolved.

But such situations are far from rare.

In May, a London trader caused the FTSE 100 index to drop by more than 2%, after keying in an erroneous order to sell £30m-worth of shares.

Three months earlier, a cluster of such trades caused an accidental 14% jump on the Nasdaq.

And in 1998, in the biggest incident of its kind, a Salomon Brothers trader mistakenly sold $1.2bn-worth of French government bonds when he carelessly leaned on his keyboard.

... or more often technological

Such errors have far more potential to cause havoc these days, say experts, because an increasing number of transactions are conducted automatically, without the sort of human oversight that could spot an obviously incorrect price.

The sort of markets where most business is conducted in person, even face to face, are open to human error - but generally throw up a far smaller number of the most egregious errors.

At the same time, the increasing reliance on trading technology has made the integration of stock exchanges problematic, as binding together incompatible computer systems is often expensive and time-consuming.