It’s been more than a week since turmoil struck markets around the world, erasing trillions of dollars of stock market value in the process. With prices suddenly swinging around wildly after a long period of calm, people are asking the obvious questions: Could we have seen this coming? Are the machines that dominate trading making things worse? Is there a glitch somewhere in the market’s plumbing that caused this?
The honest answer is that nobody knows. In the US stock market alone, trading is splintered between more than a dozen electronic platforms, where a daily average of 10.4 billion shares have changed hands this month, according to Rosenblatt Securities. Even major trading firms like Virtu Financial, which posts bids and offers on thousands of securities on more than 235 venues around the world, have limited insight into what’s taking place. Regulators are building systems to compile more data, but there are doubts about whether they could process all the information even if they had it.