SAPessi

A few days ago I found this news on the net and I thought it was worth reporting in this space.

Some of you may know that Nasdaq, on July the 3rd, has created a new listing tier. The NASDAQ Global Select Market. A tier with the highest listing standards in the world. At the moment it lists approximately 1450 companies.

This new exchange made a real gaffe not few days ago. It erroneously knocked down Google (GOOG) of $350 a share in a mere 10 minutes.
On Thursday the 27th of July Google closing price was $387.12. Just a minute after the closure of the market at 4 p.m. the firm announced its second-quarter results: Better then expected earnings but decelerating revenue growth compared to the first-quarter.

What happened then is astounding. In the following minutes the stock went down to $364 and then up to $391. At that point somebody from Instinet-ATS, a Nasdaq company, entered an order probably inputing a wrong figure which started generating trades between 4:10 and 4:12 at the price of $38. This ill-timed mistake generated a queue of trades at prices between $37.81 and $38.05.

It is funny that such a highly ranked exchange has no means of controlling the price entered by a trader. Which should usually be contained between +/-10% of the last valid trade price.

Earlier that week a private investor had built up his position in Google of 200 units at a price of roughly $380 for an approximate grand total of $76000.
You can clearly imagine his surprise when he was told by his broker that the stock had dropped to the price of $38 per share. Resulting in a loss of about $68400.
The broker was however kind enough to reassure its client that it could have been a mistake. But they couldn’t guarantee it given the volatility of Google’s shares.
Nonetheless, the customer, according to the broker representative, became hysterical, complaining of chest pains and crying. “The way he sounded, I thought for sure the man was going to have a heart attack,” he said.

While the poor investor was struggling and clinging to his life with his fingernails Nasdaq took its sweet time to admit the mistake and announce its decision of voiding all after-hours Google trades below $352.07 (10% less of the day’s closing price). Nasdaq in fact waited until 5:01 p.m. to do so.
The good news is that our investor trapped in this series of incredibly unfortunate circumstances survived the hour. Even so, I’m quite sure that his life expectancy decreased of at least 5 years.

To give you a clearer idea of what our ill-fated hero went through during that hour I’ve created two charts.
To generate these charts I have assumed the investor took his position on Monday the 17th of July and calculated his returns using every day closing price adjusted for dividends and splits from Yahoo Finance.

This first one reports the real performance of its holding.

Whereas this second one reports how his performances would have been, and effectively have been in his mind, during that surreal hour.

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