August 1, 2012

Tradebot Chaos, China Cord Blood, Chick-Fil-A

ccbc_hft_algo_glitch.jpg

A glitch hit the New York Stock Exchange this morning, causing wild swings in prices and excessive trading volume in the shares of around 140 different companies. It appears the glitch was caused by an out-of-whack high frequency trading [HFT] algorithm at the NJ-based brokerage Knight Capital Group.

Rather than buy low and sell high, the algorithm apparently did the opposite within the stocks' bid-ask spread, basically locking in small losses on thousands of trades per minute, at an ever-accelerating pace as the bot's buying drove prices for the stocks in question ever higher.

Near the end of the trading day, the NYSE announced it was canceling the anomalous trades in 6 stocks, but leaving Knight on the hook for at least 134 others, to the tune of several hundred million dollars of cash-out-the-door losses.

ccbc_logo.gifOne of those six stocks is the China Cord Blood Corporation [NYSE: CO], a thinly traded, small-cap stock that saw a sudden 300% price jump on a 15x spike in trading volume.

The Hong Kong-based China Cord Blood operates testing and storage facilities in seven Mainland cities. It has around $59 million in annual revenue.

It went public in 2008 through a reverse merger with some anonymous Mainland shell corporation called Pantheon China Acquisition Corp. It had two facilities, in Beijing and Guangdong, and was valued at around $350 million. In April CCBC announced a $65 million convertible debt agreement by a Chinese growth fund managed by KKR, the New York-based LBO firm. The company's market cap at closing today was $177.7 million.

I have no idea what the relevance of any of this is to anything, except that it all feels like the future, in the same way that bringing chicken sandwiches to a gay marriage fight feels like the past. What a marvelously baffling world to bring a kid into.

This Is What Happens When An HFT Algo Goes Totally Berserk And Serves Knight Capital With The Bill [zerohedge]
GE, AIG, GM and Others Possibly Affected by Trading Glitch [barrons]
China Cord Blood chart for Aug. 1, 2012 [google finance]

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