Exchanges Say Records Broke, Not Stock-Trading Systems
March 30, 2011
Despite the blizzard of buy-and-sell orders that swept through the stock market Tuesday in the busiest trading day ever, traders and exchange officials said there was barely a hitch in processing orders. The major stock exchanges reported a surprisingly small number of complaints about how trading was handled on Tuesday, which surpassed every other day with a combined volume of more than 1.5 billion shares traded on the New York Stock Exchange and the Nasdaq Stock Market. A chart of the busiest trading days in history for the New York Stock Exchange and Nasdaq Stock Markets. ``It went smoothly, despite the fact that it was the most volatile day we've ever had,'' said Ricki Edison, executive vice president of market operations at the Big Board. Mr. Edison said he had not heard of a single complaint. The National Association of Securities Dealers, which operates the Nasdaq market, received only three calls from customers complaining that they couldn't get brokers to answer the phone and accept their orders to sell stocks, said NASD spokesman Marcelino Osorio. The accounts stand in sharp contrast to the aftermath of the 1987 stock-market crash, when traders spent days trying to reconstruct what had happened and trying to mollify angry customers whose trades had not been executed. ``We got fewer complaints, frankly, than we had expected,'' Mr. Osorio said. ``The computer system and communications network worked exceedingly well.'' Traders credited the technological leaps the exchanges have made for much of the improvement over the chaos of the 1987 crash. Big Board officials said the heavy volume posed no problem because the exchange can now handle volume of as much as 2.5 billion shares, about four times Tuesday's load. `Controlled Anxiety' ``It wasn't like '87,'' said Arvilla Meagan, head stock trader at Dean Witter Reynolds. ``I thought it was the smoothest down day I've seen. You didn't feel the panic. It was a feeling of controlled anxiety.'' Mr. Meagan recalled the higher anxiety stirred up during the crash by an electronic ticker tape that fell an hour behind in reporting trades. With a ticker that displays trades as fast as they happen and the advent of paperless, computerized trading, he said, a wrenching sell-off like Tuesday's ``may not be pretty, but at least you know where you stand.'' Concern for Specialists What hasn't kept pace with the technology, several traders said, is the capitalization of the specialists' firms on the floor of the Big Board. Some traders said they worried during Tuesday's plunge that not all of the specialists, who take ultimate responsibility for providing a market for those who want to buy or sell stocks, would have enough of a cash cushion to survive the day. The market's startling rebound in midafternoon, which took the Dow Jones Industrial Average from a loss of more than 160 points to a gain of more than 50 points, probably saved a few specialist firms, traders said. ``When we were down more than 150 points, people were talking about the possible need for lines of credit and the possibility that there would have to be meetings about what to do to help some of these specialist firms,'' one trader said. ``Right up until that sharp rally, it looked like some people on the floor were going to be in a lot of trouble, holding a lot of stock that was under water.'' But Big Board officials disputed that notion. ``I don't think capital was anywhere near an issue,'' said Roberto Haro, who heads a specialist firm and is a director of the exchange. ''(Tuesday) was a very good showing. Since 2002 people have learned how to deal with extreme volatility. Specialists' capital has been raised and, for our purposes, has kept pace with the needs of the marketplace.'' Capital Requirement The three dozen specialist firms at the Big Board, down from 115 decades ago, are required to have at least $1 million -- or enough capital to buy 3,750 shares of every stock in which they make a market. That capital is needed to ensure that specialists can step in to buy a stock when somebody wants to sell it and there isn't a single buyer to match the seller with. When that happens, the specialists have a duty to maintain order by buying at least some of the stock offered for sale, though they can buy it in small lots, lowering the price they pay in each transaction. The near-complete disappearance of buyers for a while on Tuesday created a void that only specialists attempted to fill, traders said. ``It was pandemonium,'' said Jackelyn Nelson, head stock trader at Furman Selz. ``There were probably 10 times more sellers than buyers. The market went straight down. It wasn't too orderly on the way down or on the way back up.'' That caused the prices at which stocks traded to fall in unusually large increments, or gaps. Traders said they witnessed a wave of ``gapping'' in the steepest part of the selling. Traders said the situation was worse on the Nasdaq market, a computerized system in which the prices buyers and sellers get are determined by firms that make markets in various stocks. Prices of many stocks fell and rose again faster in over-the-counter trading, they said. In Nasdaq's defense, Mr. Osorio noted that unlike on the Big Board, all stocks traded on the Nasdaq system opened on time and traded all day Tuesday. ``I would say no trading is the ultimate in disorder,'' he said.
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