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Comment by potatolicious | Hacker News Reader

I dunno... seems more probably a blip in the data rather than value actually falling to $0.01 momentarily...

Most likely, it went "no-bid". At any given time, there're a bunch of people who have long-term $0.01 limit orders for a bunch of stocks. Markets work by matching up buyers and sellers; if there are no buyers at "normal" prices, the computer systems will start eating up those $0.01 bids that are placed and left in the computer systems without any expectation of being filled. The folks who place those orders become fabulously wealthy, the folks who tried to sell at any price get screwed.

It seems unbelievably unlikely that a stock traded with the volume of accenture could ever have no bids. Wouldn't you have to blow through all the people who put in limit orders for the company first? I don't see how this could possibly be true.

Yes, seems quite unlikely--but may still have happened.

I am trying to imagine the mechanics of what a "no-bid" situation would look like. Presumably you mean that one of the market makers would have to take the other side of the trade, but the rules for MM entities stipulate that they have to provide liquidity within certain bounds, not at all times and at any cost. Even if there were truly no bids -- which didn't happen -- the market maker would never make the market at $0.01.

Typically the exchanges break these trades after the fact (i.e., over the next 24 hours).

Why? Because the trade was "unfair?" I wonder what legal grounds they would have to break that trade.

First off, shares have not yet changed hands. The two parties to the trade each have an agreement with clearing houses that the shares will change hands in the next 3 days, modulo various clauses.

One of the clauses lets the exchange break trades under certain circumstances, typically in the case of obvious errors and "unusual circumstances". So it's fairly likely that trades above and below a certain price on some stocks will be broken.

See Rule 11890 (c) (2) of the NASDAQ.

http://nasdaq.cchwallstreet.com/nasdaqtools/platformviewer.a...

[edit: I previously attributed the NASDAQ rule to NYSE.]

This is happening.

Nasdaq is breaking trades that occurred between 14:40 and 15:00 which executed at more than 60% away from the previous (consolidated) print price.

Exchanges define rules, it's not a free for all. http://nyserules.nyse.com/nyse/

I'd like to see the legal basis for that.

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