A high frequency trading “meltup” and crash occurred in the shares of United Western Bancorp (ticker:UWBK) this morning. UWBK trades below $1, but it is a liquid stock about 42% owned by institutions.
The bizarre trading occurred between 9:41 am and 9:43 am. Most of the meltup and subsequent crash occurred in just a few seconds. It began at 9:41:28 when UWBK was trading at 0.3293. In the next second, there were many small trades and UWBK was already trading at 0.4899 by 9:41:29. The real action occurred in the next second when there were numerous trades. By 9:41:30, UWBK was trading at 0.95. Finally at 9:41:30, UWBK topped out at 1.05 and then dropped dramatically in the next few seconds to trade at 0.311 by 9:41:34.
The exchanges were forced to cancel all UWBK trades at or above $0.3901 between 9:41 a.m. and 9:43 a.m. EST. The exchanges did not say how or why the erroneous trades occurred. I would love to see a full report on this episode from the SEC. These high frequency trading episodes seem to be occurring on a regular basis, but I have not seen any followups by the SEC.
It is time to introduce a mechanism to slow down trading. I believe it would be fairer to the public if trading were not continuous, but occurred at discrete time intervals. The intervals need not be very long. For example, if a trade was allowed to occur only once a minute there would be much better liquidity and less market fragmentation.
This type of discrete trading already occurs at the opening and the close of the NYSE, and leads to much higher average trade sizes. This would make the playing field much fairer for retail investors who trade without the benefit of a high frequency computer.
Full Disclosure: No position in UWBK.