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| 2003
News and Press Releases |
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HEADLINE:
SEC Urged To Address Electronic Market Risk --- Agency Is Being Pressured After Glitch On Nasdaq Caused Losses For Investors
By: Craig Karmin and Kate Kelly
The Wall Street Journal. December 10, 2003
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EXCERPT: Pressure is mounting on the Securities and Exchange Commission to address the increasingly fragmented electronic stock-trading system in the U.S. after a glitch on the Nasdaq Stock Market caused big losses for some investors. New York Democratic Sen. Charles Schumer yesterday called on the SEC to address what he said were the risks to investors from an overly fragmented market where a single set of rules is difficult to follow and enforce. When you don't have a single, deep liquid market but instead competing exchanges, it can create all kinds of problems," Mr. Schumer said in an interview. "This is crying out for some serious examination and proposals to prevent this sort of thing from happening again in the future." The problem arose on Friday when the share price of Corinthian Colleges Inc., a Santa Ana, Calif., educational services concern, suddenly plunged 32% over eight minutes. The selloff, which was apparently caused by erroneous trading, prompted Nasdaq to halt trading in the stock. But an electronic exchange, run by Archipelago Holdings LLC, resumed trading in the stock about 30 minutes before Nasdaq did. Nasdaq later canceled hundreds of trades in the stock over an eight-minute period, leading many traders to complain that those cancellations caused them losses. Mr. Schumer's comments followed calls to the commission by Nasdaq to address issues related to Corinthian. Nasdaq wants the SEC to make clear that trading halts on Nasdaq issues must be obeyed by all markets. Meanwhile, Archipelago's regulator, the Pacific Exchange, is asking the SEC to examine Nasdaq's handling of the trading halt. SEC spokesman John Nester said the commission is looking into the controversy surrounding the Corinthian trades. He declined to say specifically what issues the SEC was considering, though he added, "We've said on a number of occasions that a broad-based review of market structure is a top priority for the commission." The situation comes at a sensitive time for the SEC, which is dealing with major investigations in the mutual-fund industry. The commission is also overseeing an overhaul of corporate governance and a trading probe at the New York Stock Exchange. Although electronic glitches at Nasdaq are not new, the Corinthian Colleges mix-up is the most significant stock-trading problem the market has experienced in recent years.
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