Globe says "algorithm gone wild" sinks FNX Mining

2008-05-02 07:44 ET - In the News

The Globe and Mail reports in its Friday edition that James Dinan earned $470-million (U.S.) last year as head of $14-billion (U.S.) York Capital Management. The Globe's inside poopmeister Andrew Willis writes that on Wednesday Mr. Dinan's fund gave back $49-million (Canadian) of that total on a computer-driven trading error that hammered FNX Mining. York owns 19 per cent of FNX. York is FNX's largest shareholder. FNX was the victim of what traders call an "algorithm gone wild." Computer-based algorithm programs buy or sell stocks based on set criteria. Something went wrong in the final minute of trading Wednesday. An investment dealer trading through the "anonymous" function on the TSX suddenly hit the market with a series of FNX stock sales. The selling pressure dropped FNX from $28 to $24 in the final moments of trading. After-market trading saw the stock drop to $23.15. Market regulators quickly intervened. Market Regulation Services decided the closing price on FNX should be set at $25. When the market opened Thursday, FNX popped right back to $28, and it closed at $27.95. The sharp drop came at the end of the month and will hammer performance at hedge funds such as York.