It was supposed to make the stock market run smoother and more efficiently. But the near-total computerization of stock trading in the U.S. led once again to a huge technical glitch that, for three hours on Thursday, stopped trading altogether on the
The unprecedented hiatus in trading on the second-largest U.S. exchange did not cause a panic like the "flash crash" did three years ago, when a barrage of computer-generated sell orders by an obscure investment fund precipitated a sudden, nearly 1,000-point drop in the Dow Jones industrial average in a matter of minutes, a dizzying fall that was just as quickly retraced when the glitch was ironed out.
On Thursday, trading on the
But critics of the hair-trigger, nanosecond computer trading that now dominates the U.S. stock market have warned for years that another big meltdown is likely as computers, just like humans, occasionally make mistakes or trigger unforeseen events with the potential to cause horrendous damage within a matter of minutes before humans regain control over the markets.
"All this progress has paid some perverse dividends. The computers that banished the file clerk and, more recently, the trader, have become so powerful that their mistakes can lead to market meltdowns," said
The technical hiccups appear to be more frequent as humans have stepped aside and let the market increasingly be taken over by robots. The software malfunction Thursday has not been fully explained, but it led to a suspension of all trading in
Two days earlier,
Last week, problems at the Chinese trading firm
Last year, Nasdaq was embarrassed by technical problems that marred the debut of
In view of its high-profile problems, Nasdaq's own stock took a beating, diving by 4 percent, when full trading on the exchange resumed Thursday at
"It's fair to say that electronic markets have amplified tiny errors into enormous ones as they cascade through digital channels," said
"These glitches provide red meat for those who think that computer-driven trading, particularly high-frequency trading, is inherently dangerous. It's increasingly hard to argue with the critics as problems recur," he said.
High-frequency trading is the growing practice on
"The commission is determined to enhance the safeguards necessary for strong market systems," said newly installed
"Today's interruption in trading, while resolved before the end of the day, was nonetheless serious and should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants," she said. "The continuous and orderly functioning of the securities markets is critically important to the health of our financial system and the confidence of investors."
After the flash crash in
"The trading system is like an electric grid. Problems in one area can blow up" and affect the whole system, said
Some analysts said Thursday's incident showed that computerized trading, even when it causes major glitches, is basically harmless and doesn't have the power to hurt the larger economy in any big way.
"Did anyone notice that even as high-frequency trading was halted for a few minutes, that actual economic activity didn't screech to a halt?" asked
(c)2013 The Washington Times (Washington, DC)
Visit The Washington Times (Washington, DC) at www.washingtontimes.com
Distributed by MCT Information Services