Nanex ~ 18-May-2012 ~ Facebook Fallout

During the FaceBook's failed IPO pre-opening period and extending through the first 20 minutes or so of trading (11:00 through 11:50 Eastern), bad prices (spikes) appeared in other stocks such as AAPL, SPY, VXX, NFLX, INTU, and QCOM (see list below). Price spikes also occurred in Facebook during this time(see Chart 4 on this page). There are likely other stocks that were affected. In nearly all of these cases the price spikes were executing against quotes that were far outside the NBBO and most of these trades occurred on the CBOE, and a few on Chicago and AMEX. Fortunately, by chance, the prices were not wide enough to trigger circuit breakers in these stocks. A similar thing happened during BATS failed IPO in AAPL and other stocks.

List of Symbols found (so far) with price spikes related to Facebook IPO:

AAPL	ADSK	AMGN	DBS	DD	EEV	EFA
FXA	FB	IBB	IDD	ILMN	INTU	KED
MOO	NFLX	NTAP	PDCO	PJP	PRFZ	QCOM
QLD	RFG	ROM	SAM	SPLK	SQQQ	TIP
UST	VXX	XBI	XRAY	ZNGA

We think these bad price executions are related to whatever issues Nasdaq was having in Facebook and probably are from errors in routing software. We found one clue in VXX (see charts 6 & 7 below): Nasdaq was the best bid/offer much less frequently during the occurrence of a price spike in VXX. It is somewhat discomforting to see just how fragile our extremely complex markets are, especially given how quickly things can deteriorate. More disturbing, none of the bad trades appear to have been canceled. Apparently, a few investors were stuck with pretty awful fills, caused by the disastrous IPO of an unrelated stock

Chart 1. AAPL 1 minute intervals

Chart 2. NFLX 1 minute intervals

Chart 3. QCOM 1 minute intervals

Chart 4. QLD 1 minute intervals

Chart 5. UST 1 minute intervals

All charts below show trades color coded by exchange.

Chart 6. VXX 1 second intervals

Chart 7. VXX 2 second intervals
Note that the frequency of Nasdaq being the best bid or offer drops off right before Facebooks opening (11:30) up to about 11:39.