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Nasdaq, NYSE Heads Trade Blame For Wild Sell-Off

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Nasdaq, NYSE Heads Trade Blame For Wild Sell-Off

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Nasdaq, NYSE Heads Trade Blame For Wild Sell-Off

Nasdaq, NYSE Heads Trade Blame For Wild Sell-Off

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Stephen Mara, of Quattro M Securities, watches in shock as the Dow Jones industrial average fell almost 1,000 points in a matter of 16 minutes. The markets later pared most of their losses, but it's still unclear what led to the wild sell-off. Henny Ray Abrams/AP hide caption

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Henny Ray Abrams/AP

Stephen Mara, of Quattro M Securities, watches in shock as the Dow Jones industrial average fell almost 1,000 points in a matter of 16 minutes. The markets later pared most of their losses, but it's still unclear what led to the wild sell-off.

Henny Ray Abrams/AP

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

On Wall Street today, a lot of head scratching and finger-pointing. Industry and government officials are trying to figure out what caused 16 minutes of chaos yesterday, chaos that sent the Dow Industrials down almost 1,000 points and had some major stocks trading briefly for pennies.

NPR's John Ydstie reports.

JOHN YDSTIE: The bizarre market meltdown yesterday afternoon started amid frenetic selling. Investors were unloading stocks and heading for the safety of U.S. Treasury bills and gold in response to the Greek debt crisis.

But as the market fall accelerated at an eye-popping rate and then reversed course abruptly and recovered, it was clear something strange had happened. Today, in a brief digression during a statement on employment gains last month, President Obama tried to reassure investors.

President BARACK OBAMA: I want to speak to the unusual market activity that took place yesterday on Wall Street. The regulatory authorities are evaluating this closely with a concern for protecting investors and preventing this from happening again.

YDSTIE: This morning, Treasury Secretary Timothy Geithner was on the phone with the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission, but the administration provided no theory on what might have happened.

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On Wall Street, it was a different story. In separate interviews on the financial news channel CNBC, two big players were pointing fingers. Robert Greifeld, head of the all-electronic NASDAQ market, and Duncan Niederauer, CEO of the New York Stock Exchange, which still has humans on the trading floor, were engaged in a battle of man against machine.

Greifeld was clearly smarting from suggestions that high-speed computer trading programs had triggered the huge meltdown. So he criticized the humans at the New York Stock Exchange for briefly halting the trading of some big-name stocks like Procter & Gamble, 3M and Accenture.

Mr. ROBERT GREIFELD (President and Chief Executive Officer, NASDAQ): You have the primary market, the listing market, deciding not to support the stock, not trade it, to stop trading. That sends a signal, a signal to a very nervous market. And that signal was a negative signal that there's something wrong with this stock. So instead of standing behind it, they basically walked away from that.

YDSTIE: But the NYSE's Niederauer says his exchange didn't walk away, it actually embraced its responsibility. Its human traders saw anomalies in the behavior of the stocks, he said, and decided to flip their single-stock circuit breakers, pausing trading for 60 to 90 seconds.

Mr. DUNCAN NIEDERAUER (Chief Executive Officer, New York Stock Exchange): We put the note out to the markets, and they have two choices in that next 30 to 60 seconds. They can wait and work with us, yet yesterday the other choice the electronic markets have is to trade through us. And that's exactly what all the markets did.

YDSTIE: So the electronic markets, including the NASDAQ, continued to trade in the stocks. The problem was there were very few buyers, a lack of depth in market terms, and the bids were very low. So Procter & Gamble, which had been trading at about $60 a share, dropped 37 percent to below $40 on the NASDAQ. Accenture went from $40 a share to one cent a share.

The problem, says Niederauer, is that no humans were involved to say those trades made no sense.

Mr. NIEDERAUER: What clearly can happen is if you have a lack of depth on these electronic markets, a computer presses the button, it's indiscriminate.

YDSTIE: And those distorted trades activated other sell programs that caused the Dow to drop over 700 points in about 10 minutes. Niederauer says the fall in just two stocks, Procter & Gamble and 3M, was responsible for 400 points of that loss.

The incident yesterday clearly exposed a flaw in the way U.S. stock markets work with each other. One regulatory change that could emerge is a requirement that circuit breakers that slow trading in individual stocks be applied uniformly across all stock exchanges.

John Ydstie, NPR News, Washington.

There's a lot of head scratching and finger-pointing on Wall Street on Friday, as industry and government officials are trying to figure out what caused the 16 minutes of chaos that left the Dow industrials down almost 1,000 points and had some major stocks trading for pennies a day earlier.

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