The Markets

Amid Thursday's mayhem, why didn't the Wall Street's "circuit breakers" kick in and stop the plunge in stocks? Because the flow of orders to buy and sell was relatively orderly, The Wall Street Journal reports.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York on Friday.
Benjamin Norman for The New York Times

 

The circuit breakers introduced after the 2010 "flash crash" to guard against rapid price swings were triggered by just one stock on Thursday, the WSJ said. In another case, NYSE Amex canceled a set of trades relating to what was probably trader error.

However, "Problems in Europe were more severe, where derivatives markets run by NYSE Euronext reported a 90-minute trading engine outage that forced a delayed open for interest-rate and stock-index contracts, while driving erroneous calculations of equity indexes compiled by the exchange group," the article said.

Restrictions were also invoked on roughly 460 short sales when a stock's price fell at least 10 percent. "In such cases, traders are only allowed to sell the stock short at a price above the highest national bid, serving to relieve what is often sharp, rapid selling pressure," the Journal reported.

There is an old saying in the business that at least one Wall Street trader is keeping in mind today: "Nobody wants to try to catch a falling knife."

The idea is that if the market is tanking, don't rush in.

"Let it land, and then get involved," said Gordon Charlop, a managing director at Rosenblatt Securities. "Don't fight the trend. Eventually it will stick somewhere."

"You would rather miss it by 100 points on the Dow than to jump into the big selling pressure," he said.