Still No Answers About Thursday's Stock Market Plunge

Sure, the SEC and other federal agencies are looking into what may have caused Thursday's stock market plunge, but answers may not come as quickly as some wish. Now that the "fat finger theory" that a trader mistakenly entered "billion" instead of "million" has been discounted, the Wall Street Journal reports, that some traders wonder "whether rapid-fire computer trading, coupled with the market's complex trading systems, triggered a free fall that appears to have begun with an order to sell a single stock."

The WSJ offers this sequence of events:

A big order to sell Procter & Gamble Co. shares came a little after 2:40 p.m., when the stock market was already jittery over turmoil in Greece. Minutes later, the market plunged, ultimately declining nearly 1000 points before rebounding rapidly.

The sell order was sent to the New York Stock Exchange, where it caused a log-jam in trading. Suddenly, P&G shares, among the market's most stable, fell about 35%.

It's not clear precisely how the P&G trade affected other securities. But the tumbling blue-chip stock helped drag down the Dow Jones index. Traders believe the big drop in P&G was picked up by computer models, which set off a chain reaction of selling in other stocks.

There's a little more detail on that cascade effect here. Nasdaq's CEO Robert Greifield sniped on CNBC that the NYSE was at fault for stopping trading for certain stocks, "Stopping for 90 seconds in time of crisis is exactly equivalent to not picking up the phone." Then NYSE Eurotext's CE Duncan Neiderauer appeared on CNBC, complaining about Nasdaq's continued trading, "These computers go out and just find the next bid they can find." The NY Times has a graphic on how the stock market has become fragmented over the past few years.

The SEC may be considering some new rules: According to Bloomberg News, "SEC officials are weighing whether uniform trading curbs should be imposed across markets for companies that have fallen a certain percentage, said the people, who declined to be identified because the discussions are preliminary. The agency is examining whether any rules should include a time element because a steep decline that occurs in minutes may be more detrimental to markets than a decline over several hours, one of the people said."

Contact the author of this article or email tips@gothamist.com with further questions, comments or tips.

By Jen Chung in News on May 8, 2010 5:52 PM

Comments [rss]

NYbradES

No, I'm not basing this all on the name... Horse said that no Socialist State has failed... the Nazi's agenda was explicitly Socialist. They failed.

The difference is that your examples list countries that use their name to misrepresent their beliefs. The Nazis used their name to accurately represent their beliefs.

This conversation belongs on a Gothamist story about socialism... Please move on.

I'm too busy working in this beautiful system we have, providing enough for myself, and enough money left over to give to non-profits that do the job horse would like the state to do.

jessecal

The greater question for me is: Just how did the market RECOVER from 'the plunge' in a matter of minutes? . . . no one seems to be asking THAT question!!

handsomedevil

That's easy - computers programmed to snap up stocks at bargain prices and to cash in on the slightest uptick.

Humans lost (some bastard was bitching on NYT about how his stocks were set to sell at a 5% loss but needed human approval to be rebought), computers won.

Jon Claw

I feel bad for anyone who DOESN'T think this was market manipulation...

angry_pickle

My guess is too many algo traders implementing the same algos. Those people seem more and more like a gigantic herd of mad cows.

Mordicai

Ladies & gentlemen...capitalism! It is great because it supposes rational actors...then lets a bunch of apes take control! Woohoo!

NYbradES

so does Democracy... bunch of morons elected Obama because of good marketing and 'blame that guy' sentiment.

You have a better system? (by better, I mean one that hasn't completely and utterly collapsed in the last 100 years, so I'll save you the embarrassment of listing Dictatorship, Communism, Socialism, etc.) Any ideas?

Horse Badorties

It's funny how capitalists try to find a reason for its failures outside the system itself. It's an irrational system.

NYbradES

Really? we've "collapsed" 3 times? And 'mini-collapse'... I think you can come up with some better terminology. If you'd care to use the accepted terminology, we've had MORE than 3 depressions, and several recessions. To think that an economy can continue with strong, steady growth continuously is nonsense. There will always be booms and busts.

As far as failed Socialist states, I need only name one: Nazi Germany

So, yes, Capitalists are afraid of Socialism, because it inevitably results in oppression. And ovens.

Horse Badorties

nybrades, wipe the spit off your keyboard. Nazi Germany was not socialist. Capitalism has failed.

NYbradES

"It's funny how [socialists] try to find a reason for its failures outside the system itself. It's an irrational system."

Most capitalists I know have a much better retort than "Is not!". "Nazi" Party literally means "National Socialist" Party. Like today's socialists, it decried the Jewish financier 'conspiracy' of the Weimar Democracy.

The following were several key areas included in the Nazi's ideas for reform: 'that the State shall make it its primary duty to provide a livelihood for its citizens . . . the abolition of all incomes unearned by work . . . the ruthless confiscation of all war profits ... the nationalization of all businesses that have been formed into corporations ... profit-sharing in large enterprises ... extensive development of insurance for old-age ... land reform suitable to our national requirements'

Nice company you keep. Thank God they failed. Socialists = Failed.

Mordicai

If you want to play at semantics, can I list anything that has "democratic" or "republic" in the name as a similar evil? Like if East Germany or Cuba are your particular foreign devils? Or the Democratic People's Republic of (North) Korea? Or the Democratic Republic of Vietnam? Prime Minister of Democratic Kampuchea Pol Pot must be an example of Democracy, by your logic, right?

NYbradES

No, I'm not basing this all on the name... Horse said that no Socialist State has failed... the Nazi's agenda was explicitly Socialist. They failed.

The difference is that your examples list countries that use their name to misrepresent their beliefs. The Nazis used their name to accurately represent their beliefs.

This conversation belongs on a Gothamist story about socialism... Please move on.

I'm too busy working in this beautiful system we have, providing enough for myself, and enough money left over to give to non-profits that do the job horse would like the state to do.

Mordicai

It is pretty awesome to start a conversation in the comments of an article & then be like "how did we start talking about this! This thing I started talking about! MOVE ON!"

NYbradES

Wow- you guys are good. "He started" and "Did not, did so".... powerful argument.

[2] | mordicai:

"Ladies & gentlemen...capitalism! It is great because it supposes rational actors...then lets a bunch of apes take control! Woohoo!"

Clearly, I started the conversation... Now don't you have something else to go complain about? I'm sure there is some evil rich person making money today, and you need to go suck it out of him. Be gone!

Mordicai

...I didn't bring up socialism? & you were the one who criticized capitalism & democracy? & trying to start INTRANETZ FLAME WARZ? I'm glad I'm one of "you guys," though. Whoever you imagine "us guys" to be.

Horse Badorties

NYbradES, Capitalism has collapsed twice in the last century, and three times in the last 150 years! With dozens of mini-collapses during the same time. I'm counting the current crisis as a collapse, since it has not played itself out completely and is still collapsing.

Socialism, on the other hand, has not failed. It's why capitalists are still so terrified of it.

ProudLiberal1947

There will be know answers until the right wing and the PLUTOCRATS can get their stories together and co ordinate them with the FED Bank.

Come on people they are sending subtle msg's to gov't to do operate or watch what happens why to you think they are fighting Transperancy so hard. It is about hte power and the CONTROL.