The New York Stock Exchange (NYSE) dropped nearly 1,000 points yesterday from Wednesday's close in a span of about 20 minutes before rebounding and finally closing down 346.51 points at 10,520.32.
An ABC News television story last night showed that the market, which was off by nearly 500 points already in the day because of the nervousness created by the reaction in Greece to the proposed EU - IMF bailout, dropped 587 points between 1442 EDST and 1448 EDST alone.
Company stock prices gyrated wildly. A Washington Poststory today says, "The shares of Accenture, a consulting firm, fell from $40 to a single penny and then back to $40 again. Procter & Gamble traded at $54 on the New York Stock Exchange. But at the same time, Nasdaq was reporting that the company's shares were selling for $39."
One rumor floating around yesterday afternoon was that a trader at Citigroup made a "fat finger" trade; instead of selling $16 million of a S&P 500 futures-linked contract he (or she) typed in $16 billion instead. Citi denied the rumors last night.
Others blamed programmed trading that ran amok, while others said that there were problems in the "circuit breaker" programs that regulate trading. 3M, for instance, was reported to be trading below its circuit breaker price. This Nasdaq story explains why the market circuit breakers didn't kick in, although it does not address the 3M situation specifically.
Still others called it direct manipulation.
The Washington Post story quoted Ted Weisberg, president of Seaport Securities and a trader for more than 40 years, who summed it up this way:
"How did this happen? You've got to ask the SEC [US Security and Exchange Commission]. The bottom line is the government created a trading mechanism with a lot of different marketplaces. Now they probably have 40 or 50 different venues where stocks trade. I don't know what their rules are. The public doesn't understand. This is another perfect example of the government changing the ground rules, and we end up with unintended consequences."
"... during periods of panic, information travels faster than knowledge and money moves faster than perspective."
The SEC said last night it would be investigating the day's events, while the major markets said they would be unwinding any erroneous aka "busted trades" they discovered during the 20-minute meltdown.
For instance, the Sun-Times reports, "An advisory from the Chicago Stock Exchange said the busted trades will be for prices that were at least 60 percent higher or lower than the previous trade."
I'll let you know what happens, but I suspect that there isn't one simple answer or solution.
Robert N. Charette is a Contributing Editor to IEEE Spectrum and an acknowledged international authority on information technology and systems risk management. A self-described “risk ecologist,” he is interested in the intersections of business, political, technological, and societal risks. Charette is an award-winning author of multiple books and numerous articles on the subjects of risk management, project and program management, innovation, and entrepreneurship. A Life Senior Member of the IEEE, Charette was a recipient of the IEEE Computer Society’s Golden Core Award in 2008.