There were 16 separate interruptions that started shortly after 10 a.m. EST as AMR, which filed for bankruptcy protection on Tuesday and is listed on the New York Stock Exchange, fell as much as 88% to 20 cents in the first minutes of market activity. But due to circuit-breaker rules, the bulk of the pauses were triggered only well after the initial plunge.
The rules acted as a straitjacket for those trying to sell and for those trying to cash in on existing bets against AMR that were suddenly profitable, traders said.
Under rules put into place after the May 2010 "flash crash," many commonly traded stocks are halted if they swing more than 10% in a span of five minutes, to give market participants time to regroup and to prevent erroneous trades from undermining the market. For stocks priced under $1, the range widens to 50%. In the flash crash, the Dow Jones Industrial Average dropped about 900 points in minutes.
But because AMR is part of the Russell 1000 stock index, the stricter 10% rule stayed in effect even after the stock dove below the $1 level. It means that a move of three cents or four cents would trigger a pause for a 25-cent stock.
In addition, unless AMR's fortunes change significantly, the stock's listing on the NYSE is likely to end before long. Keeping a minimum average share price of $1 or greater for 30 trading days is one of the exchange's listing requirements. In 4 p.m. composite trading, AMR's shares plunged $1.36, or 84%, to 26 cents.
On Tuesday, American Airlines parent company joined those that filed for Chapter 11 bankruptcy. High fuel prices, over $800 million labor costs and competitors winning the airline’s business travelers over caused its defeat. Despite the filed bankruptcy with a cash stockpile of $4.1 billion, the company said buying new aircraft from Boeing and Airbus is still feasible. It may resurface as a tough contender by 2012’s end said Stern Agee analyst Jeff Kaufmann.
The airlines may stop non-profitable routes services and cut its presence at airports like Chicago O’Hare and San Francisco International. This could result to increased prices and give its rivals more profit-earning opportunities more so for its toughest competitor, United Continental Holdings. Airline analyst Savanthi Syth believes American plans to shrink its Caribbean and Latin American routes from its Miami hub. This could push JetBlue’s 6.3 million seats higher if American pulls back its 11.2 million seats in the region. For the latest updates PRESS CTR + D or visit Stock Market news Today
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