Why Didn't the Circuit Breakers Hit on Monday?

Do you remember a time that when the market was down 100 points or so the trading collars would “kick in” to provide a relief from any unusual movement? How about the often discussed recession of the up-tick rule for short selling?

Each of these mentioned (and surely others) are all in the investing hall-of-fame, retired and all but forgotten. They served a purpose in their time, but have been relegated to the scrap heap with other ideas that had “no verifiable” benefit.

So, now, we are stuck with a only a 1/2 hour trading stoppage for a 10% drop (see chart below). Notice the lack of a 2-minute rule as we have with football for market declines after 2:30pm for a mere 10% drop. Good news though… if the DJIA is down 20%, the market will close if it is after 2:30pm.

Do you think the removals of the trading collars and the up-tick rule have helped to exacerbate the recent market gyrations? Thanks to the WSJ for this excellent graphic…

Comments

[Just an Old...:]

If you will remember, the collars for trading stops came at a time when the DOW had risen over 1100 points in about 1 month, August-September of 1982, I think. A result of the institutions jumping into the market. The collars were put in place to avoid any volatile swings to the downside to protect the "little guy" investors who were following in after the institutions.
Now they have the "Plunge Protection Team" to keep the downside pain smaller and more drawn out, as opposed to an "all at once" mentality.

2008 Oct 01 01:20 PM