The Swing Back After Stock Market Glitch

Federal regulators are trying to piece together what happened in the stock market Wednesday morning. Just after the opening bell, the prices of dozens of stocks began to gyrate up and down. The swings were soon traced to a software glitch at a New Jersey brokerage firm called Knight Capital. NPR's Jim Zarroli joins Steve Inskeep with more.

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STEVE INSKEEP, HOST:

NPR's business news starts with a stock market mystery.

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INSKEEP: Federal regulators have been tracing the cause of yesterday's wild ride on the stock market. Just after the opening bell, the prices of dozens of stocks began to gyrate up and down for no apparent reason. Apparently, the stocks were moving even more irrationally than normal. And the mystery leads to a New Jersey brokerage firm, and we're going to learn more from NPR's Jim Zarroli. He's on the line.

Jim, good morning.

JIM ZARROLI, BYLINE: Good morning.

INSKEEP: What happened?

ZARROLI: Well, this was something that happened. It just really took a few minutes. I mean, you suddenly had a lot of stocks going up or down by - you know, some of them by 10 percent or more. Now, a lot of these were small stocks that you probably haven't heard of, but some of them were companies like Bank of America, Berkshire Hathaway, General Electric, Goodyear. I think people could see right away that something was wrong and the New York Stock Exchange suspended trades in some of the shares, but, you know, at least temporarily, there was a lot of confusion.

INSKEEP: And is there still confusion about what happened?

ZARROLI: Well, we don't know exactly what went wrong. There's a brokerage firm in New Jersey called Knight Capital, which said it had, it's calling it a technology issue. Knight Capital is in the business of using computers to match up buyers and sellers of stocks, then it routes the orders to the big exchanges. It has a lot of big institutional investors as clients. Apparently, the firm had some kind of software problem, and everything went haywire. And Knight had to tell its customers to send their orders elsewhere temporarily, which is, you know, hugely embarrassing for them.

INSKEEP: Just so we understand what happened here, Jim, to the extent that people know, was this purely an illusion, an optical illusion, or were there actual trades of actual shares of stock at wildly wrong prices?

ZARROLI: Well, I think important thing is they're really trying to figure out what went wrong or what happened exactly. But it does appear that the prices went up, and some shares are bought or sold as a result of that. I mean, you know, a lot of people have this programmed into their computers. If the price hits a certain level, you know, they buy or sell at that point.

INSKEEP: What does this say about the security of the stock market if something like this can happen because of a problem at a single firm?

ZARROLI: Well, I think it's very troubling, because, you know, this is, by no means, the first time this has happened. In fact, the only reason that there wasn't outright panic yesterday was that people on Wall Street have seen this before, and I guess a lot of them probably could figure out it was some kind of computer error. You may remember the flash crash in 2010, shares suddenly plunged, trillions of dollars and valuation disappeared in minutes. You had big problems a few months ago during the Facebook IPO. The stock market, you know, has developed these huge, complicated trading systems using super-fast computers, and we're finding out they're really vulnerable to errors.

INSKEEP: So if you are an investor who gets caught by one of these trading mistakes, is there a money-back guarantee?

ZARROLI: Yeah. I mean, this happened really fast, so probably a lot of people didn't have time to react. But let's say if you owned a stock and you saw it moving and you decided to sell it. Or maybe - which is more likely - you had a computer program that sold it on your behalf and you lost money, then the New York Stock Exchange says that trade will be canceled, so you will be made whole. I have to say it's not really clear how many shares of stock that involves at this point, how many people were affected.

INSKEEP: OK. Jim, thanks very much.

ZARROLI: You're welcome.

INSKEEP: That's NPR's Jim Zarroli, in New York.

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