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Trading on the NYSE (MIKE SEGAR/Mike Segar/Reuters)
Trading on the NYSE (MIKE SEGAR/Mike Segar/Reuters)

Fresh volatility further erodes market credibility Add to ...

The stock market, already suffering from credibility issues, has taken another hit amid reports that the New York Stock Exchange and the Securities and Exchange Commission are looking into unusual trading among 148 stocks on Wednesday morning – including names like Dole Food Co. and RadioShack Corp.

In the first 45 minutes of trading, a number of share prices went haywire, even as broad market indexes showed a veneer of relative calm. Dole shares, for example, jumped as much as 15 per cent in very heavy volume. RadioShack shares rose nearly 25 per cent, then settled back. The volatility was so extreme that controls kicked in, pausing some trading activity.

The most likely culprit: a technology glitch at Knight Capital Group Inc., a trading company, which said that the errors were probably in its market-making division.

While few investors are likely to complain about eye-popping gains in share prices, the glitch nonetheless again puts the focus on irregularities in trading activity. Some observers have been trying to explain why trading activity among retail investors has been so low recently, and one popular explanation is that investors have become fed up with what they see as a problem-plagued market.

The so-called Flash Crash of 2010 sent the Dow Jones industrial average down 600 points in a matter of minutes, only to recover that lost ground 20 minutes later. An official investigation into the shocking volatility concluded that a single trader started the unusual activity, which was then exacerbated by high-frequency trading elsewhere.

This was dismaying news for all investors, but small investors – who already feel that fundamentals are no long driving stock market activity – felt particularly betrayed. The recent controversial initial public offering of Facebook Inc. and now this latest market turbulence hasn’t helped matters.

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