Scott Patterson reports on the Dow industrials quick 3 p.m. drop:
The sudden, sharp decline by the Dow Jones Industrial Average shortly before 3 p.m. Eastern time today was triggered by a tabulation delay by Dow Jones data systems, which calculates the average. There was a temporary lag in calculation of the 30 large-stock average due to a surge in order flows as the market continued to tumble in afternoon trading, much like a clogged pipe. Just before 3 p.m., Dow Jones Indexes switched over to a backup system to calculate the average, which nearly instantly registered the huge move.
“There was a huge disconnect between the Dow futures and the Dow average” of about 200 points, said Brian Williamson, an equity trader at Boston Company Asset Management. Similarly, the S&P 500 and Nasdaq both fell, but the decline isn’t nearly as dramatic.
The glitch wasn’t the cause of the decline, but it did cause the drop to register far more quickly than it otherwise would have. Other indexes fell at the same time, but more gradually. Some traders noticed a discrepancy between futures contracts tied to the Dow industrials and the index, which directly tracks the stocks. Usually, the futures contracts closely track the overall average. For the day, the Dow lost 416.02 points, the S&P 500 fell 50.33 points, and the Nasdaq Composite declined 96.66 points in what turned into a rout across just about every asset class.
“Whether or not this would have hapepened had the Dow Jones thing not happened, I don’t know — everybody was sort of confused initially as to why the market tanked,” says Doreen Mogavero, CEO of floor broker Mogavero Lee. “My gut reaction is, we’re going to get a bounce tomorrow morning but the question is, does this kick off margin calls of any kind?”
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