Columnist Matthew Goldstein of Reuters yesterday posted a pieceabout the possible role of high-frequency trading in the plunge in Nasdaq-listed Dendreon’s stock last April (69 percent in 70 seconds). The post was followed by some interesting comments both for and against high-frequency trading.

I don’t have any inside knowledge about that incident, but I do want to offer a different perspective, which I’ve voiced here before: when a stock is being hit by a wave of erroneous orders, or a hoaxed news story, investors can benefit from a couple of unique features in the New York Stock Exchange’s market model. As I commented in response to Matthew’s column:

Matt — Disclosure: I do PR for NYSE Euronext, which runs the New York Stock Exchange and other markets.

One aspect not discussed above: had Dendreon been listed on the NYSE, I don’t think there’s any way the stock would have lost almost $17 in 70 seconds. Had it been on NYSE, a designated market maker would have spotted the move and worked with exchange staff to immediately halt the stock until the situation could be sorted out. The rapid price change also would have triggered Liquidity Replenishment Points, which pause automated trading briefly and also would have called attention to it.

We have seen this movie before, for example, last year with the stock of UAL Corp., as I blogged about here: http://exchanges.nyse.com/archives/2008/ 09/ual.php

I am not kicking fully automated markets — we operate several ourselves — but I am suggesting that having people with assigned responsibilities to make fair and orderly markets in specific issues, and take action before such mistakes get to be much of a problem, is a benefit of the NYSE market model that is often overlooked. — Ray
- Posted by Ray Pellecchia

Hat tip to the NYSE member who called the column to my attention.