Thoughts on Thursday’s Market Meltdown: Rushing to Judgment Dangerous, But Individual-Stock Circuit Breakers Deserve a Look
There is no way to characterize Thursday’s wild market swings as anything other than a serious failure of US equity market structure — one that deserves equally serious consideration of how to prevent it from reoccurring.
Rushing to Judgment is Dangerous
By now everyone is familiar with how the “flash crash” manifested itself — within barely a half-hour the DJIA and S&P 500 dropped about 7% each and then rebounded to their previous levels. Stocks such as PG and ACN saw huge sell imbalances and plummeted to absurd prices, resulting in a flood of trades that were later cancelled by various exchanges. Most importantly, panic briefly took hold of a market that already had frayed nerves because of the European sovereign debt crisis, as well as uncertainty over the UK election, US financial-reform legislation and other worries. With the memories of September 2008 all too fresh in our minds, it felt to many at around 2:30 pm on Thursday as if we were once again staring into the abyss.