Why some large-cap multinationals briefly became penny stocks

The wild swings Thursday were a result of a period of low volatility and low volume, says Ali Crosthwait, head of research at ITG Canada Corp.

What that means is that there hasn't been enough new information recently to drive activity and most investors have been sitting tight.

All of a sudden fear flashed through the markets, related to the European debt crisis and perhaps driven by concerns that some traders had access to key information that others lacked, she says.

"The market got spooked and people panicked. No one wanted to step in and buy. It was quickly oversold."

Several large-cap stocks appeared to all but disintegrate during the heat of the selloff, when the Dow Jones Industrial Average briefly sank almost 1,000 points.

Shares of Philip Morris International, which began the day at $48.58 (U.S.), briefly traded at $2, before climbing again to $47. Accenture PLC, which began the day at $41.94, traded momentarily for one penny. And Lear Corp., which opened the day at $77.10, has trades recorded at zero, but the stock climbed back to $74.07.

When large blocks moved with a market order, i.s., an order to buy at the current market price, there were not enough orders in the book to protect the seller when the selling panic started, Ms. Crosthwait says.

While there are protections in place that kick in to safeguard against automated computer selling, there is not the same sort of protection for individual trades done as market orders. However, as the dust began to settle Thursday, the exchange moved to clean up some of these penny trades, recording them as error transactions and removing them from the books, she says.

The speed of the selloff Thursday afternoon shows that people are very jumpy and unsure of their positions. It speaks to intraday technical and psychological conditions rather than a break down of any fundamentals, Ms. Crosthwait says.