Dow Jones Plunge Fueled by Overwhelmed Computers

cloudscout writes "The Dow Jones Industrial Average dropped over 400 points today. While there were various valid financial reasons for such a decline, some of the blame is being placed on computer systems that couldn't keep up with the abnormally high volume at the New York Stock Exchange and the resulting tremor as they switched over to a backup system."

Comments

Twilight Zone: Tom Clancy

[maroberts]

As well as crashing planes into buildings, it seems "Debt of Honor" is getting good at being an oracle of modern times.

Re:Don't see how they could.

[Kadin2048]

Yes, but what I'm questioning is whether the Dow Jones' computers really had anything to do with this whole market movement at all. At most, all they did was slow down, so that the DJI lagged behind the real world for a while, and then suddenly caught up when their backup system went on-line and took over.

I think that it's more of a symptom and less of a cause. The cause of the market movement was in Asia; that made people sell, people selling caused the DJIs computers to suck. Now, perhaps the DJIs computer slowdown, and consequent large jump when they fixed the problem and got the backup running, caused more people to sell, but this seems specious. The slump was already in progress by the time that the computer slowdown occurred, because the slowdown was driven by high trade volume.

So my point is mostly that I don't see how it matters, really. People are looking towards computer glitches as the cause for the 3% drop in the market (or whatever it was), and that's just not true. The computer glitch might have made the drop look worse, or more precipitous, than it actually was at one point during the day, but it didn't cause or really drive it in any significant way. Even if the DJI folks' computers had worked perfectly, the market would still be sucking. In fact, computerization and the consequent flow of information is what links markets; it's only in the last few decades that the Asian and US markets have felt each other's pain so closely, so in a way, you can blame the computers for working too well in general, when you get these domino-effect deflations.

IBM backend w/ Linux Workstations used here?

[xxxJonBoyxxx]

If I'm reading this right, an IBM back-end system (mainframe) with lots of IBM-delivered Linux workstations were in the mix here. Anyone know for sure (i.e. work there)?

http://www.internetnews.com/bus-news/article.php/3 447741

Sooner than think.

[Anonymous Coward]

Several economists have said that America is bankrupt. In addition, they have pointed out that countries are quietly dropping dollars. Once it is realized by the general public, many will want to shed theirs, probably moving to euros joining Bill Gates, warren buffet, and other billionaires. At that point, Berneke will have no choice but to slowly bump prime up until it is 11-20% to get investors to stay. At that point, our economy will truly slow. Hopefully, at that time, GWB will be forced to get a real backbone and deal with China and get them to untie their money from ours.

Re:I have to wonder if this is spam related?

[DrWho520]

Change in Chineese trading market regulations were the cause of this drop. A massive sell off occurred with the beginning of a crackdown on questionable and illegal trading on China's stock market. This rippled to every other market in the world. Asian, North America, South American and European markets were all affected. Blaming the computer systems is damage control.

Re:NYSE: Microsoft (R) powered (R)

[Anonymous Coward]

as someone who has worked on the floor and systems at NYSE, I can assure you that none of the machines used for trading by specialists or brokers are windows machines, nor are the backends.

all of the machines you see in pictures are dumb terminals connected to a number of master unix systems. they are configured for that special keyboard set used for deals and also touchscreen inputs. however, some (not all) can be booted into windows for personal use or to use firm-specific software.

a side note -- the monitors used by NYSE (you can see them in the pictures on CNN) are ridiculous. huge size, almost perfect 180 degree visibility from side to side and top to bottom, touchscreen, and dust/fingerprint repellent. pretty nasty stuff.

as far as the backends go, the standard system and the backup system are kept running in two locations -- on site, and in a backup location outside of manhattan (not to hard to figure out where, if you try). one can function without the other, on both counts. The QA done to ensure validity is INSANE. Nothing can even be brought out on to the floor without making sure it won't corrupt any of the systems (including the bluetooth system that has become the lifeline of the trading floor -- largest (in size and traffic) private bluetooth network in the world, when I was working the floor)

Re:Dropping prices versus dropping data

[richg74]

From what I've read, and learned from talking to a couple of former colleagues (I worked in IT on Wall Street for 20+ years), your note is almost but not quite right. You correctly point out that the Dow's decline was, for a time, seriously out of line with the decline in other market indices, such as the S&P 500. However, you went on to say:

It was clear that the NYSE's computers were woefully behind on reporting a much more orderly and steady drop.

In fact, the problem appears to have been that the systems at Dow-Jones -- which owns the DJIA index and calculates it -- could not keep up with the volume. When the backup system came online, the reported index showed a significant drop in a very short time. In actuality, the decline was real, but it had already happened over a longer period of time. As it says in the original article:

"The market's extraordinary trading volume caused a delay in the Dow Jones data systems," said Dow Jones spokeswoman Sybille Reitz. "We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average."

There's no indication that there was a problem with trade reporting by the NYSE, which would be a much more serious problem. But the data feed from the exchange reports prices trade-by-trade as they occur. So, if an external system like Dow-Jones's gets behind, it usually has to plow through the update stream to get current, which can result in a sort of "compressed time" effect.

Re:I have to wonder if this is spam related?

[DerekLyons]

Change in Chineese trading market regulations were the cause of this drop. A massive sell off occurred with the beginning of a crackdown on questionable and illegal trading on China's stock market. This rippled to every other market in the world. Asian, North America, South American and European markets were all affected. Blaming the computer systems is damage control.

if you actually bother to read TFA - you'll find they don't blame the computers for the drop. They blame the computers for creating the perception of a cliff rather than a steep slope.
 
This is actually something fairly important to consider as more and more of our life interfaces with displays mediated by computer. (Even down to the mundane. I've discovered the digital controls in my oven seem to use a time weighted average - which works fine in convection mode, but it enlarges the deadband in normal mode.)

Re:I'm actually suprised

[chad.koehler]

I am involved only tengentally, so I can't speak for exactly what NSX ran into. I'm only saying the issues that I am currently seeing with our systems. We are taking every precaution to make sure that the same thing DOESN'T happen to us. One thing to note, these systems are (in general) running on the most cutting edge systems that money can buy... Hardware upgrades are usually deployed as soon as they are certified, which may only be weeks after a release. When you are already paying 6 figures for a single machine, there isn't much vertical mobility in terms of hardware selection.

Yen carry

[Anonymous Coward]

London closed down sharply yesterday, over a few hundred points. The issue is Yen carry. Check the ForEx charts for USDJPY and GBPJPY - the carry boys are running for the exists. This happened in the late nineties.

There is abnormally high volume due to hedge funds unloading highly leveraged positions secured on Yen loans.

Disclaimer: I'm carrying a large GBP/JPY short on the March future. (short at at 236.01)

Disclaimer: This post represents an opinion and should not be considered as financial advice. Please consult a financial adviser or a person authorized and regulated to give financial / investment advice in your local jurisdiction.