There was some bizarre trading behavior that occurred around 2:47 PM (EST) today. Some of the wildest trading occurred with iShares Dow Jones Select Dividend ETF (ticker: DVY). DVY is broadly diversified fund that seeks to provide price and yield performance that corresponds to t he Dow Jones Select Dividend index. It is the kind of stock that would appeal to widows, orphans and many senior citizens who are looking for steady dividend returns. DVY is a liquid stock and is also the kind of stock that is traded by high frequency trading programs.
The stock closed at $45.21, down around 3.1% on the day, but the low for the day was $17! I checked Time and Sales and found that most of the bizarre trading occurred between 2:46 and 2:48 PM EST. There were about 100 trades in that time period. Most of the trades were 100 shares each and were likely generated from a high frequency trading program.
At 2:46:10, DVY traded at $40 a share. There were then numerous small trades that walked the price down to below $20 by 2:46:43. It was striking how there were long sequences of 100 share trades that walked the price down one penny at a time. This is the modus operandi of a high frequency trading program. The low of the day was $17 which occurred at 2:47:19 EST. There was then no trading for the next 27 seconds when DVY traded at $24.54 at 2:47:46. Within three seconds, the price hit $43 at 2:47:50. It then continued to gyrate wildly but generally had an upward bias and closed at $45.21
Some high frequency trading programs must have made a windfall profit in the 30 second period where DVY appreciated over 100% from $17 to $45.
Retail investors who use stop losses were stopped out at very poor prices. By the way, DVY does not even own PG which may have had a trading glitch today.
I do not own DVY, but I follow it on a watch list. The SEC should investigate today’s trading pattern to make sure everything was done legally. But even if everything was legal, it seems clear that major changes are needed to modify or restrict high frequency trading which clearly played a role in exaggerating the major market meltdown we experienced today.
Full Disclosure: No Position in above securities.