By Chuck Mikolajczak
NEW YORK (Reuters) – The New York Stock Exchange (NYSE) suffered a technical glitch at the opening of trading on Tuesday that caused more than 80 stocks to be halted for several minutes, creating confusion among traders about which orders were filled and where stocks were trading and were going back to the “flash crash” of 2010.
WHAT WAS THE “MODERN CATALOGUE” OF 2010?
On May 6, 2010, as stocks were recovering from the financial crisis and in the early stages of what would become a nearly eleven-year bull market, the Dow Jones Industrial Average fell nearly 700 points in just minutes, briefly wiping out about 1 trillion dollar market cap.
This has led some market participants to voice complaints that increasingly automated trading poses systemic risk. Others saw such a shocking fall in the market as an aberration and the price of progress that simply needed additional guardrails to avoid a repeat. However, it has drawn comparisons to the Wall Street Crash of October 1987.
WHAT WAS THE RESPONSE TO THE DISASTER OF 1987?
After the Black Monday crash of 1987, the US Securities and Exchange Commission (SEC) mandated the creation of market-wide “circuit breakers” that required a temporary halt in trading for every 10% decline in the Dow, which could be seen as a precursor to later rules. In 2012, the benchmark index for breakers changed to the S&P 500, and the percentage levels required to trigger a trading halt were lowered.
Unlike the Black Monday crash, the “flash crash” was largely seen as something that could have been prevented with more intervention, and the SEC quickly responded with some small fixes, along with a promise to investigate concerns about the increasingly complex and fragmented stock market. In addition, a special committee of experts made recommendations on how to prevent another disaster.
One of the measures passed in 2011 was for single-stock circuit breakers, a 5-minute halt to trading in any stock or exchange-traded fund (ETF) that moved more than 10% in less than 5 minutes. This rule was replaced in 2012 by the Limit-Up Limit-Down regulation, which halts trading in stocks if they trade outside a certain range based on a floating price.
Meanwhile, in 2014 the SEC adopted a set of rules called Regulatory System Compliance and Integrity (Reg SCI) to hold exchanges accountable for such trading disruptions.
The Limit Up Limit Down ranges were adjusted following a trading session in August 2015 that saw more than 1,250 trading halts in 455 individual stocks and ETFs.
HAVE THERE BEEN OTHER RUNS SINCE 2010?
There have been instances of varying severity since the 2010 crash where trading could not take place. A memorable disruption was the delayed debut of Meta Platforms, what was then Facebook, in its initial public offering. Others included a three-hour trading halt on August 22, 2013, and the August 2015 session where trading was halted for nearly four hours. The Chicago Board Options Exchange saw two outages within a week in 2013. But until Tuesday’s technical problem, major outages had been largely contained in recent years. Notable exceptions affected individual investors more than large institutions, such as the problems in 2020 that affected trading at retail brokerages Robinhood Markets and Interactive Brokers Group.
WHAT’S GOING ON NOW?
The NYSE said a “systemic problem” prevented opening trades on Tuesday in a subset of 251 stocks, causing them to begin trading without an opening price, leading to multiple trades that the exchange later “failed “, the exchange’s terminology for cancelled. Investors and traders who suffered losses can file a claim for recovery under the NYSE’s “Rule 18,” although it was unclear how the monetary settlement would be determined. In addition, SEC staff is still reviewing the activity related to the trading suspension, according to an agency spokesman.
(Reporting by Chuck Mikolajczak; Editing by Alden Bentley and Stephen Coates)