After the Knight Capital incident, I decided to read into the new Rule 107C that NYSE pushed-out August 1st for a one-year pilot. From what I've read, Knight claims that new code rolled out for this rule was the cause of Knight's system going haywire.
Today two ETF bond funds, SPDR BofA Merrill Lynch Emerging Markets Corporate Bond ETF and SPDR Nuveen S&P VRDO Municipal Bond ETF were halted due to erratic trading. There's not much detail about this right now, so whether this could be linked is purely speculative, probably just a fat finger trade with terrible timing.
I'm no expert on the rules of the exchange, but it seems to me that the only relevant "change" would be the following, taken from the NYSE site.
A "Retail Price Improvement Order" or "RPI" consists of non-displayed interest in Exchange-traded securities that is priced better than the best protected bid ("PBB") or best protected offer ("PBO"), by at least $0.001 and that is identified as such. Exchange systems will monitor whether RPI buy or sell interest, adjusted by any offset and subject to the ceiling or floor price, is eligible to interact with incoming Retail Orders. An RPI remains non-displayed in its entirety. An RLP shall only enter and RPI for securities to which it is assigned as RLP. Member organizations other than RLPs are permitted, but not required, to submit RPIs. An RPI may be an odd lot, round lot, or PRL. (Rule 107C(a)(4))
It follows that the only time a RPI is executed is if the market maker can beat the PBB or PBO by at least $.001. I just don't see how this change could cause the erratic trading that occurred. My understanding is Knight's loss was caused by having to unwind a massive position they accidentally took on, not by market making activities. Any thoughts on this? Am I missing something obvious here (besides that bugs can have lots of unintended consequences)?