Computerized trades sent to electronic networks turned an orderly stock market decline into a rout today, according to Larry Leibowitz , the chief operating officer of NYSE Euronext.
While the first half of the Dow Jones Industrial Average’s 998.5-point plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.
“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.”
The selloff briefly erased more than $1 trillion in market value as the Dow average tumbled 9.2 percent, its biggest intraday percentage loss since 1987, before paring the drop.
More than 29.4 billion shares changed hands on all U.S. venues today, including traditional exchanges such as the NYSE, rivals Bats Global Markets Inc. in Kansas City and Jersey City, New Jersey-based Direct Edge, and other electronic platforms. The level compares with 2.58 billion traded on the NYSE, making it the biggest gap in more than three years, data compiled by Bloomberg show.
More Venues
Increasing automation and competition have reduced the Big Board and Nasdaq’s volume in securities they list from as much as 80 percent in the last decade. Now, two-thirds of trading in their companies takes place off their networks because orders are dispersed across dozens of competing venues.
Nasdaq OMX Group Inc. said it will cancel stock trades that were more than 60 percent above or below prices at 2:40 p.m. New York time, just before U.S. equities plummeted. The New York-based firm, which investigated trades between 2:40 p.m. and 3 p.m., said it will provide a list of stocks affected and the prices at which the trades will be canceled.
“The fact that it snapped back so quickly made it clear that it was an aberration,” Leibowitz said. “When a large order or series of orders comes into electronic markets, they don’t really have any way to recognize either that they’re a mistake or to slow them to down to attract the proper liquidity on the other side. And so the electronic markets actually traded all the way through the slower New York Stock Exchange markets where we were trying to slow down trading.”
