Fidelity: Lava Error Triggered NYSE Halts

One investor, a hedge fund manager who shorted Wyeth into this morning's prehalt spike, is irate at having his trades canceled.

"This rule is focused on systemic problems like 'system errors' and has nothing to do with a dumb rumor driving a stock up," he says, noting some people were buying Wyeth this morning on speculation that Pfizer PFE was going to acquire it. "If someone made a 'fat finger' mistake, great," he says. "If other people turn it into rumors and trade on it, that's their problem. It happens every day."

The source requested anonymity, citing the possibility of legal action against the Nasdaq, which claims the decision is "not appealable."

Undeterred, he said his "counsel is looking into situation," and he noted that the last time the Nasdaq canceled trades in this fashion, on Corinthian Colleges COCO back in December 2003, the canceled trades were limited to a 12-minute block.

By contrast, Thursday's decision on Wyeth "cancels everything for nearly an entire hour," the fund manager says. "It is logical, if not obvious, to assume that whatever erroneous trade [emphasis on singular] took place in Wyeth was shut off literally within a couple minutes. Thus, markets returned back to normal, and everyone else was trading off dumb Pfizer-for-Wyeth rumors going around this morning."

NYSE supporters will say this episode is a "victory for the humans" -- meaning, it's evidence that all-electronic trading, as occurs on Nasdaq, may be faster but doesn't provide the safeguards of the Big Board's hybrid system.