Editorial: Rise of the Wall Street machines
We’re not the only people who’ve seen eerie similarities between the compacted crash of the stock markets in early May and the Black Monday crash of 1987.
A slowly recovering economy, clashing views over currencies and computerized trading were all factors in the October 1987 crash as well as the mini-crash that happened May 7.
Also similar were the breathtaking speed of the decline as computerized trades overwhelmed the markets’ ability to price stocks in an orderly way. The circuit breakers and other trading halts put into place in the wake of the 1987 crash worked well for more than 20 years, but recent developments in high-volume trading work so far outside the exchanges that the 1987 fixes were not effective or did not apply.
One thing that’s changed since 1987 is a vastly greater number of ordinary investors who have staked a substantial portion of their retirement savings on the ability of the markets to enforce an orderly trading regime.
Installing a new generation of circuit breakers to deal with a new generation of trading technologies is extremely important.