I was sitting in a long news meeting this morning, laptop in front of me, checking every now and then to see how bad a drubbing the stock market was taking. One minute around noon, West Coast time, I saw that the Dow was down around 250; a few minutes later, somehow, it was down 500. I thought, “Whoa, was there another terrorist attack? Did Alan Greenspan say something? What happened?”
It turns out that what happened was some as yet undefined software problem. As this AP story describes it, the New York Stock Exchange’s systems were falling steadily farther behind all day — in other words, the actual drop in the market was already worse than it was being reported when we thought the Dow was down 250. When the market’s managers realized what was going on, they flipped a backup into place, and suddenly, the backlog cleared — leading to that huge plunge at 3 pm Eastern time.
What’s interesting to me if you look at that chart is, once the drop became known to the market — once the backup system was in place and accurately reporting the deeper plummet — the market actually bounced back to where it thought it had been, even though that wasn’t really where it was. I’m not enough of a stock geek to fully understand this, but it’s fascinating, on some level of paradoxical reasoning.
Whoever said markets were perfect information systems?
UPDATE: Based on Wednesday AM coverage it sounds like the problem was specifically with Dow Jones’ systems, not the general stock exchange systems.
[tags]stock market, dow, software, bugs[/tags]