Federal regulators reviewing yesterday's stock plunge will try to determine if the five-fold increase in the number of American equity exchanges has left them unable to manage the biggest surges in volume.
Almost 1.3 billion shares traded on US markets in a 10- minute span starting at 2.40pm, six times the average, sending prices lower on platforms from New York to Kansas City.
Nasdaq said it cancelled transactions in 286 stocks where swings grew too wide. Federal agencies began inquiries after more than $700 billion in value was erased in an eight-minute span. While most of the losses were reversed as the pace of trading slowed and exchanges were able to match buyers and sellers, the 998-point plunge in the Dow Jones Industrial Average raised concerns that the US was entering another financial crisis.
The Securities and Exchange Commission will try to determine if market participants accidentally or maliciously derailed trading, according to two people familiar with the situation. Lawmakers plan to hold hearings next week.
"Markets aren't supposed to work this way," said Jamie Selway, managing director of White Cap Trading in New York. "There was a mad rush for the exits. We just don't know whether it was accidental or intentional."
The Standard and Poor's 500 Index closed at 1,128.15 in New York, down 3.2 per cent, after losing as much as 8.6 per cent. The rout showed how the fragmentation of the US equity market may suppress demand when it's needed most, especially when the New York Stock Exchange attempts to calm trading, said James Angel, a finance professor at Georgetown University in Washington.
NYSE Euronext chief operating officer Larry Leibowitz said the Big Board prevented a bigger decline. While the first half of the intraday plunge probably reflected normal trading as concern increased that Greece's credit crisis will spread, the selloff snowballed because of orders sent to venues with no investors willing to match them, Mr Leibowitz said.
Bloomberg