May 6th Dive

Remember that huge dive stocks took on May 6th, when the Dow Jones Industrial Average plunged almost 1,000 points and you had your first ever anxiety-related ear bleed? It was the largest intraday decline in history and no matter what mess you made in your office that afternoon, it’s completely understandable.

But exactly what cause the ‘Flash Crash’ is still unknown. While initial rumours claimed that some fat fingered trader mistakenly put through a sell order for 16 billion shares of Procter & Gamble instead of 16 million, experts are slowly figuring out the plunge was caused by a variety of intersecting factors. Firstly, traders were very skittish that week. Like freshly beaten dogs, they hadn’t yet recovered from the pummelling they’d taken on the Greek debt fiasco and impending UK election. In an atmosphere like this, a large trade in the stock-futures market could have easily contributed to the sell-off. Watchdogs are also fingering the rise of upstart electronic-trading platforms, which now account for almost 75% of deals done on the NASDAQ as part of the problem. It’s tough for regulations to keep up with the leaps and bounds technology takes. Before the company that built the first Terminators started making stock exchange systems, exchanges like the NYSE could stem irrational sell offs like May 6th by shutting down their electronic-trading platforms and trading manually on the floor. With so many exchanges now operating digitally and independently on platforms using god knows what kind of mathematics and engineering, manual, synced trading isn’t’ really an option. The Securities and Exchange Commission is now contemplating stepping in. Look for them to enforce a more effective and co-ordinated system that allows them to force exchanges market-wide to either slow or stop during periods of extreme decline. Definitely for the better.