CNBC’s Maria Bartiromo conducted a great interview with Duncan Niederauer, NYSE Euronext CEO. Niederauer described the technical aspects behind the market crash on Thursday. While he may have been too frank in forecasting “I think it will be pretty ugly tomorrow morning,” his openness gave a revealing look at the technical vulnerabilities of today’s modern trading systems.
(Note well that policymakers are already moving into crisis management mode as the Group of Seven (G7) will meet via conference call Friday morning. I expect the market to react very poorly if no action comes out of this meeting. In fact, the markets may anticipate no action ahead of the call!)
Other interesting points (emphasis mine):
- His intro put the day into (scary?) context: “This is the market structure we all signed up for in the U.S…We just have to accept that things like this will happen in periods of exacerbated volatility.”
- Recent sentiment seemed pretty complacent, making the market vulnerable to a steep sell-off.
- The NYSE put the stocks that had suspicious trading on 60-90 second review. Electronic exchanges have different rules and do not have to wait for the NYSE to issue a judgment.
- People stood in front of cameras Thursday evoking images from the financial panic of 2008, potentially adding to the urge to sell.
- Institutional trading has been dominating the market. This type of trading is not sustainable.
Be careful out there!
Full disclosure: no positions