Trader Talk

More NYSE vs. Nasdaq Fingerpointing


More finger-pointing on the cause of Thursday’s drop.

The House has posted the testimony of both Larry Leibowitz of NYSE and Eric Noll of Nasdaq before the Financial Services Subcommittee, scheduled for 3pm ET today.

Mr. Noll noted that as of yet there was no clear "'smoking gun' that single-handedly caused or explains Thursday's events."

However, he said three events occurred around the critical 2:40-3:00pm time period last Thursday:

1) "Aggressive, nervous selling of S&P 500 futures.”

2) NYSE Arca experienced "data communication issues" with other exchanges.

3) NYSE "Liquidity Replenishment Points" (LRPs) impacted the trading of individual NYSE stocks, allowing other markets to stop routing orders to it.

Mr. Noll supported uniform individual stock circuit breakers. He also supported a broad proposed circuit breaker, whereby trading will be halted for fifteen minutes when the Standard and Poors 500 Index declines by five percent; for one hour when the Index declines by 10 percent; and for the remainder of the trading day when the Index declines by 20 percent.

NYSE COO Larry Leibowitz did not address "data communication issues" in his testimony. But Mr. Leibowitz emphatically denied that they had "stepped away" from the market, as has been alleged. He noted that many of the LRPs in effect were resolved in less than one second, and the average time of the LRPs was approximately 40 seconds (I have previously reported this).

What happened next, everyone seems to agree. Mr. Leibowitz: "orders were routed to electronic markets that had not mitigated the volatile price declines and which had limited amounts of liquidity on their books."

Mr. Leibowitz also said that the SEC should require uniform stock circuit breakers, and that the SEC should not allow other markets to trade through their quotes.

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