Fidelity: Lava Error Triggered NYSE Halts

Updated from 4:25 p.m. EDT

An order that originated from Fidelity Investments was transmitted incorrectly, causing shares of Wyeth (WYE), AT&T (T) and Jefferies (JEF) to be halted this morning on the New York Stock Exchange as specialists identified what they considered erroneous trades.

The stocks were halted on the NYSE for most of the morning and were reopened starting with Jefferies at around 11:15 a.m. EDT; all three were reopened shortly after 12 p.m. EDT. But in an episode likely to revive debate about the benefits of human involvement in trades, the Nasdaq was forced to cancel, or break, so-called off-market trades made via electronic platforms in the morning hours prior to the NYSE halt.

Sources say Fidelity Investments was acting as the sponsoring broker for a third party, National Financial Services, which is a unit of the mutual fund giant.

"Fidelity Capital Market Services, which is part of Fidelity Brokerage and executes trades for a variety of clients, electronically transmitted several small orders accurately to the Lava trading system," says a Fidelity spokesman. "Once Fidelity Capital Market Services recognized problems with handling [the orders], they immediately stopped transmitting."

The Fidelity spokesman declined to comment further.

Check out TheStreet.com TV video. Aaron Task and Farnoosh Torabi discuss the cause of the morning's trading halts.

"A technology malfunction that sent erroneous orders to the market has been identified, and appropriate remedial action has been taken," says Stephen Cohen, a spokesman for Lava, which is an electronic trading platform and unit of Citigroup (C). Cohen declined to comment further.