Explainer: Wall Street’s market glitches and the repercussions

NEW YORK, Jan 24 (Reuters) – The New York Stock Exchange (NYSE) suffered a technical glitch at the opening of trading on Tuesday, halting more than 80 stocks for several minutes, and causing confusion among traders about which orders had been filled. . and where stocks were trading, going back to the “flash crash” of 2010.

WHAT WAS THE “BLASTING” OF 2010?

On May 6, 2010, as equities 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 (.DJI) dropped nearly 700 points in a matter of minutes, with short cut one out. It has an estimated market capitalization of $1 trillion.

This has led some market participants to complain that the increasingly automated trading is a systemic risk. Others saw such a shocking breakdown as strange, and the cost of development, that only more advocates are needed to avoid a repeat. Nevertheless, it drew comparisons to the Wall Street crash of October 1987.

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WHAT WAS THE ANSWER IN 1987?

After the “Black Monday” crash of 1987, the US Securities and Exchange Commission (SEC) ordered the installation of “deal buttons” throughout the market that required a temporary halt for every 10% decline in the Dow. there is trade. seen as a prelude to later rules. In 2012, the benchmark for streak breakers changed to the S&P 500 (.SPX) and the rates needed to trigger a trading halt were reduced.

Unlike the Black Monday crash, the ‘lightning crash’ was largely seen as something that could have been prevented with more intervention and the SEC quickly responded with some minor adjustments, along with a promise to investigate concerns about the increasingly complex and fragmented stock market. . In addition, an expert committee of experts made recommendations on how to prevent another accident.

One of the measures adopted in 2011 for single-stock crashes was a 5-minute trading halt in any fund or exchange-traded fund (ETF) that moved more than 10% in less than 5 minutes. That rule was replaced in 2012 with the “Limit-Up Limit-Down” rule, which halts trading in a stock if it trades outside a specific range based on a reserve price.

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Meanwhile, in 2014, the SEC adopted a set of rules called regulatory compliance and integrity (Reg SCI) to hold exchanges accountable for these trade disruptions.

The “Limit Up Limit Down” clauses were adjusted after a trading session in August 2015 that saw more than 1,250 trading transactions in 455 individual stocks and ETFs.

ARE THERE ANY MORE GLITCHES SINCE 2010?

Since the 2010 crash, there have been significantly different events where the trade failed to materialize. A memorable stumbling block was the delayed launch of Meta Platforms ( META.O ), then Facebook, in its initial public offering. Others included a three-hour trading halt on August 22, 2013 and the August 2015 session that saw trading halt for nearly four hours. The Chicago Board Options Corporation ( CBOE.Z ) saw two outages in one week in 2013. Notable exceptions affected individual investors more than large institutions, such as the 2020 challenges that affected trading at retail brokers Robinhood Markets ( HOOD.O ) and Interactive Brokers Group ( IBKR.O ).

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WHAT HAPPENS NOW?

The NYSE said a “system problem” prevented Tuesday’s opening auctions in a subset of 251 stocks, causing them to begin trading without an opening price, resulting in a group of traders ignoring the “failure,” the exchange’s terminology, to cancel. Aggrieved investors and traders could file a lawsuit for compensation under the NYSE’s “Rule 18” although it was unclear how a monetary settlement would be determined. Additionally, SEC staff are still reviewing the action related to the trading halt, according to an agency spokeswoman.

Reporting by Chuck Mikolajczak; Editing by Alden Bentley and Stephen Coates

Our Standards: The Thomson Reuters Trust Principles.

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