(Bloomberg News) Investors in three of the biggest Dow Jones Industrial Average stocks were whipsawed by price swings that repeated every hour yesterday, fueling speculation the moves were a consequence of computerized trading.

Shares of International Business Machines Corp., McDonald's Corp. and Coca-Cola Co. swung between successive lows and highs in intervals that began near the top and bottom of each hour, data compiled by Bloomberg show. While only IBM finished more than 1 percent higher, the intraday patterns weren't accompanied by any breaking news in the three companies where $3.42 billion worth of shares changed hands.

Regulators have increased scrutiny of computerized strategies that rose to prominence in the U.S. after more than a decade of market structure reform. The Securities and Exchange Commission and Commodity Futures Trading Commission blamed a broker's algorithm for setting into motion the events that caused the May 2010 market crash that briefly erased $862 billion from U.S. equities in less than 20 minutes.

"Somebody probably has software that's running an algorithm that's either selling in 30-minute intervals or buying," Bruce W. Weber, dean of the Alfred Lerner College of Business and Economics at the University of Delaware, said in a telephone interview. "For the market value of Coke to be going up and down in this way, oscillating every hour, is a pretty disconcerting observation. This is not going to raise investors' confidence in the mechanics of our market."

Value Traded

John Nester, a spokesman for the SEC, declined to comment on the trading, as did Kent Landers, a spokesman for Coca-Cola. Vineeta Durani of IBM didn't return a call and e-mail requesting comment. McDonald's didn't immediately make a representative available for comment.

"We're not aware of any issues," said Rich Adamonis, a spokesman for the New York Stock Exchange, where the companies are listed. "Nor were there any circuit breakers or other halts applied to those stocks. We didn't receive any complaints in our market. Everything was fine."

IBM fell 0.9 percent to $193.40 at 1:08 p.m. in New York today, while McDonald's slipped 1.2 percent to $91.62. Coca-Cola lost 0.8 percent to $76.91.

Trading Tools

Algorithms are trading strategies that break larger buy or sell orders into smaller pieces over a specified period of time such as an hour or day. Traders at fund managers or brokers use the automated strategies to mute price impact and mask activity as they try to scoop up visible and hidden orders spread across exchanges and alternative venues such as dark pools.

A volume-weighted average price, or VWAP, strategy seeks to buy or sell stock over a certain period, weighted for the number of shares traded at different levels. A time-weighted average price algorithm tries to buy or sell over a set amount of time. More aggressive and tailored algorithms exist to fine-tune the behavior based on market conditions such as volume, volatility or the price movements of indexes.

Together, the three companies represented 14 percent of the value of trading in Dow stocks yesterday. IBM, which reported results July 18, made up 8.1 percent, with $2.03 billion changing hands, more than every stock in the index except Pfizer Inc., the data show. Yesterday had the highest value traded for the three stocks since March 16, when $3.52 billion changed hands, and it is almost twice the 2012 average of $1.96 billion.

Scratching Heads

"Every fundamentally oriented trader/investor is scratching their head," Nicholas Colas, the New York-based chief market strategist at ConvergEx Group, said in an e-mail. "These are high-dollar stocks, and major weightings, relatively speaking, in indexes such as the Dow and S&P 500."

About 10.4 million shares of IBM changed hands yesterday, twice the daily average of the past 12 months, data compiled by Bloomberg show. About 9.03 million shares of Coke changed hands, 25 percent more than the three-month average. The total number of shares traded in McDonald's yesterday was 7.43 million, 13 percent more than the three-month average, data compiled by Bloomberg show.

"Volume was significantly higher in most of those names yesterday, which combined with the exaggerated price moves would indicate that there were large orders placed in the algo," said Mark Turner, head of U.S. sales trading at New York-based Instinet Inc., which accounts for almost 5 percent of daily U.S. equities volume, said in an e-mail.

Highs, Lows

Coca-Cola's intraday low was $76.50 at 9:58 a.m. The stock rose to $77.25 at 10:28, fell 0.7 percent to $76.71 at 11 a.m., rose 0.9 percent to $77.40 at 11:29 a.m., and fell 0.8 percent to $76.79 at 11:59 a.m. It hit successive highs at 12:29 p.m., 1:22 p.m. and 2:29 p.m., data compiled by Bloomberg show.

IBM, whose earnings topped analyst estimates, closed up 3.8 percent at $195.34, the biggest gain in the Dow. During the day, the stock climbed 0.77 percent or more to an intraday high six times, each time losing almost all of its gain in an hour. The shares reached highs of $196.59 at 12:28 p.m., $196.44 at 1:27 p.m. and $196.49 at 2:29 p.m., data compiled by Bloomberg show.

"It's conceivable there was an algo involved but most don't run on the half hour," said Bernard Donefer, a professor at Baruch College who wrote the April 2010 article "Algos Gone Wild" for the Journal of Trading. "They run every couple of minutes, or seconds or even faster. That doesn't make any sense. It doesn't seem like something you would see with a normal algo."

Audit Trail

The SEC voted last week to require exchanges and the Financial Industry Regulatory Authority to build a single system to monitor and analyze trading activity on U.S. equity and options markets. The rule mandates a so-called consolidated audit trail to expedite surveillance across 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock trades away from public venues.

The effort is part of the agency's response to the May 6, 2010, stock rout that temporarily sent the Dow down almost 1,000 points. The so-called flash crash was triggered by a mutual fund firm's algorithmic trade that sparked the rapid selling of futures because it took into account volume but not price or time, according to a report released by the SEC and CFTC in October 2010.

While swings in the Dow average yesterday didn't track the individual companies, their influence showed in the 116-year-old gauge. Its high for the day came four minutes before 12:30 p.m. and the second-lowest point subsequent to that was reached at 1:59 p.m.

"I don't think this is of the magnitude of the flash crash," Weber said. "What this shows is there's software in the market that was not calibrated or tested against a type of condition that appears to have emerged where liquidity-supplying algos were backing away just when the liquidity-demanding algos were appearing. That appears to have caused the fluctuations to be much more extreme."