FT: “Plunge in US equities remains a mystery”

May 7, 2010

When the plunge came, traders said it was exacerbated by the rapid-fire computer systems that post prices and execute trades in microseconds. Such trading accounts for the bulk of volume in US equity markets and it served to reinforce a downward move that saw some stocks trade for a penny or less.

Because computers also serve to link markets, the panic spread to currencies and bonds. The yen soared in value against the dollar and the euro. The demand for government debt, a traditional haven during a crisis, soared, pushing the yield on 10-year US Treasury bonds sharply lower.

The situation was made worse, many traders said, by NYSE Euronext’s decision to slow down trading on its trading floor, which sent orders to other venues and intensified the selling.

“This is not a day for the industry to be proud of and when only one exchange slows down or stops trading it does not improve the situation, it exacerbates it,” said Mr OBrien.

One government official said the activity reinforced worries that “the market has outpaced the ability of the infrastructure to handle it. We have detached finance from the real economy and created a monster.”

FT.com / Markets / US - Plunge in US equities remains a mystery.

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