Wall Street Stock Slide Remains a Mystery

The lead article in today’s New York Times, “Origin of Scare on Wall Street Eludes Officials,” describes the inability of market analysts and federal regulators to discover the exact reason for the Dow’s 1,000-point decline on Thursday. The original explanation of an entry error, someone typing a billion dollars instead of a million, seems to be incorrect.

Well, it’s not very reassuring to know that there’s still a weak point in the market structure that can cause a worldwide financial panic. The current theory states that the slide may have been caused by the interrelationship between various markets and the different rules they have about when to stop trading or change procedures in the face of major declines. Electronic automated trading also remains as another possible reason.

Apparently, according to the article, today’s financial markets have become increasingly complex and have broken up into four different sectors: registered exchanges (63.8%), electronic communication networks (ECNs) (10.8%), dark pools (7.9%) and trading inside broker-dealers (17.5%).  The last two hide pricing information from the public until their trades are completed.

Meanwhile, the head of the New York Stock Exchange and Nasdaq have broken into a public feud with each other regarding their differing approachs about when to stop trading. Needless to say, all this is not very reassuring to the individual investor.

Let’s hope they figure it out sometime soon.