As if markets didn’t have enough to contend with – riots in Greece and uncertainty about whether or not more European countries face the threat of default – now they have to contend with technical glitches that send markets into sheer panic too.
Last Thursday, a technical glitch over in New York briefly erased $1 trillion in market value. But market watchers believe the dip wasn’t as unexpected as many have been made to believe. Speaking to the New York Times, market watchers expressed their belief that the dip “was years in the making, driven by the rise of computers that transformed stock trading more in the last 20 years than in the previous 200”.
Days after the Dow Jones plunged nearly 1,000 points in a matter of minutes, many questions are left unanswered. The cause of the glitch, for one, which sent the value of several stocks briefly to almost zero, is still a mystery. One possibility being investigated, according to Reuters, “was that a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures”. This move would have been enough to trigger sell orders across the market and cause the biggest intra-day slide since the financial crisis began in late 2008.
Meanwhile, regulators and exchange officials believe that “mismatch in policy” was partly to blame for Thursday’s rapid collapse. While the New York Stock Exchange slowed trading in some stocks when the glitch appeared, many other exchanges didn’t. “This drove some large investors – many with automated programs to sell securities when prices hit certain trigger points – into a kind of panic selling that helped push the market lower”.
Here at home, the JSE didn’t remain unscathed either. In fact, only one of Johannesburg’s 40 blue-chip stocks managed to finish Friday’s session in positive territory.
“But what’s the real cause of these market jitters?” you ask. For one, emotions are running high. “People are bailing,” said Garth Mackenzie, a trader at Imara SP Reid, “They’re so unsure about what the extent of this eurozone debt situation is going to be. It’s pandemonium.”
Although the blue-chip Top 40 Index dropped 3.76% on Friday – its biggest one-day fall since late April 2009 – it managed to make up most of its losses by the time markets closed on Monday. Despite this resurrection, one fact remains: Markets are very volatile and extremely hard to call at the moment. Be careful out there!
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