“The day after $1,000bn was briefly wiped off the market value of US equities, traders were still trying to work out what caused share prices to plunge and then rebound so dramatically in a matter of minutes,” Michael Mackenzie and Henny Sender report for The Financial Times.
“The conventional wisdom held that an incorrectly typed sell order – one that confused ‘billions’ for ‘millions,’ for example – was the likely culprit,” Mackenzie and Sender report. “‘The trigger for the sell-off was most likely some kind of errant order, a fat-finger typo, which set off a chain reaction of selling,’ said Sang Lee, managing principal at Aite Group. ‘I would be shocked if that was not the case as the fall in stocks was so sudden and extreme.'”
MacDailyNews Take: A typo? Really? Might we be so bold as to wonder why this never happened before? Everyone’s been typing just perfectly for years? Puleeze. And, if true, any system that can fail so spectacularly due to a single typo doesn’t deserve to be called a “system.”
Mackenzie and Sender report, “However, despite the persistence of this story, officials were struggling to idenfity a specific cause. ‘We still don’t know what was the initiating signal for the trading activity we saw on Thursday,’ said Jeff Wecker, chief executive officer at Lime Brokerage. ‘The verdict is still out.'”
“What was clear was the ferocity of the fall. Just before 2.40pm on Thursday, the S&P 500 index, the US equity market’s benchmark, fell from 1,120. Inside six minutes, it bottomed at 1,065.79, a slide of nearly 5 per cent,” Mackenzie and Sender report. “By 3.00pm, the index was moving above 1,120, although still down 4 per cent on the day before, settling 3.2 per cent lower by the close.”
Mackenzie and Sender report, “One government official said the activity reinforced worries that ‘the market has outpaced the ability of the infrastructure to handle it. We have detached finance from the real economy and created a monster.'”
“The Securities and Exchange Commission and the Commodities Futures Trading Commission said they would ‘review the unusual trading,'” Mackenzie and Sender report. “Hearings have been scheduled for Tuesday before the House financial services subcommittee on capital markets.”
Full article here.
MacDailyNews Take: Oh, goodie. Congressional subcommittee hearings are always so productive.