Technology Trouble on the NYSE
It seems clear that while the market was going to do a deep drop yesterday anyway, the tumble was exacerbated by technology troubles on the NYSE. Specifically, a Dow Jones computer that feeds updated index prices got behind on all the trading volume, and when the computer caught up -- they had to switch over to a backup machine -- it caused a late-afternoon apparent collapse in the Dow, which fed selling on all three indices, only to reverse somewhat in the last hour.Would things have been better without the glitch? Interesting question. The WSJ's MarketBeat argues -- using some recalculated data -- that things were bad anyway, so this didn't really matter.
I'm going to disagree. While things admittedly were falling anyway, the pace of the fall matters a great deal in terms of how traders respond, how aggressively they buy (or sell), and overall market sentiment. Given that the correct figures showed an earlier and steeper decline than was displayed by the flawed DJ systems yesterday, it could easily have been the case that buying programs, which propped the market up toward the close, kicked in much earlier and stopped the tumble sooner.
Could it have gone the other way too, with an earlier and steeper correct Dow decline dragging things down farther and sooner? Sure, but I have a harder time buying that, for two reasons: One, the Dow came back more than 100 points after it became clear a glitch had screwed things up; and two, the major U.S. markets are all up (so far) today.
Look further out, this is a problem worth watching. The data volume and overall computational complexity on major markets is not going to get easier to handle. Matter of fact, Regulation NMS is going to make for more intricate communications, with specialists on any of the nation's regional exchanges now on equal footing with entrenched rivals at the major exchanges. It will require a great deal more communications, and much more opportunity for data-deluged systems to get behind, as happened yesterday, even if only briefly.
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As an aside, the usual suspects are saying that this sort of thing wouldn't have happened with floor traders (i.e., humans) maintaining more orderly deal flow. I say, Bullshit. We are long past the point where humans could maintain orderly flow in the complex and internetworked world of exchanges and trading types we see today. People who say otherwise are either wearing rose-colored glasses, or are recently unemployed floor brokers.
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