Cisco’s wasted timeout

Trading in Cisco , the San Jose-based maker of Internet gear, was halted briefly Thursday morning after exchange officials flagged what they initially believed was an erroneous trade.

But after a brief investigation, exchange officials let the trade stand, leaving it unclear exactly what was accomplished.

The NYSE Amex, which also trades some Nasdaq stocks, halted trading in Cisco for five minutes at 10:41 a.m. EDT after noticing that the stock, which had closed Wednesday at $23.39, had changed hands at prices as high as $26.

That’s more than 10% above the price it had traded at five minutes ago – setting off a circuit breaker installed by the Securities and Exchange Commission in response to May’s flash crash. The SEC is running a so-called pilot program testing the circuit breakers in big stocks as it further studies the issue.

Cisco is the fifth halt issued under the pilot rules. Anadarko , Citigroup , Genzyme and Washington Post  are among the companies whose shares have also been stopped for five minutes.

The SEC adopted the program in a bid to prevent a repeat of the flash crash, which it said threatens to “seriously undermine the integrity of the U.S. securities markets.”

Unfortunately, some traders doubt halting stocks in response to a single out-of-line trade is the way to do this. They say that the very act of halting trading is likely to further reduce confidence in the markets, while potentially handing insiders yet another advantage over the mom-and-pop types whose interests are at stake here.

“Regardless of what happened at the NYSE Amex, we have another trading halt that should not have happened,” writes Joe Saluzzi of Themis Trading.  “’Cooler heads got to prevail’ is what we will hear and that the circuit breakers are working.  And we say, just the opposite:  confidence continues to erode and these false halts are causing more agitation with investors.”

Cisco, for the record, was back down to $23.24 in afternoon trading.