Why Did the Market Tank?

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Hey, remember how one of the big benefits of high-frequency trading is supposed to be that it deepens market liquidity? And remember how I wrote that, in reality, HFT probably does a great job of providing liquidity when you don’t need it and a lousy job when you do need it? Well, yesterday the stock market needed liquidity and guess who didn’t provide it?

Tradebot Systems Inc., a large high-frequency firm based in Kansas City, Mo., closed down its computer trading systems when the Dow Jones Industrial Average had dropped about 500 points, said Dave Cummings, founder and chairman of the firm….Mr. Cummings said Tradebot’s system is designed to stop trading when the market becomes too volatile, too fast.

….The withdrawal of high-frequency firms from the market didn’t necessarily cause the downturn, but could have added to it, some market experts say. A number of high-frequency firms closing down in the midst of a sharp market drop can “widen markets out substantially,” said Jamie Selway, managing director of New York broker White Cap Trading.

In other news, the SEC is investigating what happened yesterday: “U.S. regulators plan to examine whether securities professionals triggered yesterday’s stock-market plunge or exploited the turmoil to profit illegally, two people with direct knowledge of the matter said….The SEC and Commodity Futures Trading Commission said in a joint statement after U.S. markets closed that they will examine ‘unusual trading’ that contributed to the plunge.”

Overall, I’m with Atrios. Maybe this whole thing was mostly a glitch, maybe not. “Still, my gut tells me we are heading in a downward direction.” Maybe not today and maybe not next week. But the aftermaths of banking crises don’t usually play out in just a year or two. Normally it takes three or four. We’re still in the middle of the hurricane.

SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

payment methods

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