It's not intrinsically a "bad" thing per se and it was something already established long before the current set of conditions arose. But none the less, it's an artificial constraint introduced on trade systems that is likely beneficial.

But we are not rational actors. We can get into panics. Panics can stir more panic. Forced breaks allow for the market to reassess data for a few minutes without fear of loss for not acting immediately.

I think there is scope for designing market mechanisms which have the volatility-reduction effects of periodic auctions, but which still allow market makers to hedge. I hope people are working on those.

And how is that a bad thing in and of itself? It would presumably knock out some of the ultra-low-margin HFT but so what? If it would have the effect of turning the stock market into less of a roulette table, with fewer gamblers compared to bona fide investors - isn’t that a good thing?

T6: Halt - Extraordinary Market Activity Trading is halted when extraordinary market activity in the security is occurring; NASDAQ determines that such extraordinary market activity is likely to have a material effect on the market for that security; and 1) NASDAQ believes that such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to NASDAQ; or 2) after consultation with either a national securities exchange trading the security on an unlisted trading privileges basis or a non-NASDAQ FINRA facility trading the security, NASDAQ believes such extraordinary market activity is caused by the misuse or malfunction of an electronic quotation, communication, reporting or execution system operated by or linked to such national securities exchange or non- NASDAQ FINRA facility.

H10: Halt - SEC Trading Suspension The Securities and Exchange Commission has suspended trading in this stock.

Trading halts may or may not fix that, but that's their purpose.

Then they're doing it wrong. You shouldn't have money that you need immediately in the stock market. Yes, people will do that anyway, but I'm not sure we should cater to those people when the health of the markets as a whole are at stake (assuming circuit breakers are effective; up for debate).

It is actually expected that the market will typically go up, not down. Otherwise there would be no difference between investing and gambling.

Basically - we should protect against any really dramatic sudden changes as chances are that something is wrong.

In the last year the S&P grew ~22% prior to this recent drop, that's fine... and on a day swings in the low single digits might be fine. But if we woke up tomorrow and the S&P had recovered the pre-drop value and then grown 20% over that price - something weird is clearly going on and we should be worried.

For instance here is a toy example of unbounded value: Consider a market for a stock in which the only market participants are two bots with the behavior that they trade the stock back and forth at an asymptotically increasing price. The buys are backed by loans from a zero interest government bank. Since the bank is efficiently hedged to losses. Both sides of the trade owe the bank, the seller can also pay the bank the money the bank needs to back the buyers loan. Thus, the bank could allow both these loans to go to infinity causing the value of the asset to approach infinity.

Similar things have happened with flash loans in the cryptocurrency space.

Emptying out all the asks is a thing that happens.

I don't follow. You'd hit 7% before 13%, so how would L2 ever execute?

This phrasing makes sense. Thanks!

But each of the L1 or L2 can only occur in a single day, not one or the other. You can hit L1, and then later hit L2, but you can't hit L1 twice.

Does that help clear things up?

I assume they have been tweaked since 1929, but they started with the crash back then.

Edit: someone else is claiming 1987 as the start. My memory says 1929. If this matters do your own research.

https://en.wikipedia.org/wiki/1933_Banking_Act

https://en.wikipedia.org/wiki/Aftermath_of_the_repeal_of_the...

Then why does L2 exist? It seems redundant, L1 would get triggered before L2, and only one can occur in a single day, so why have L2 at all? What am I missing here?

Edit: Also, anyone who downvoted me for posting the same question as someone at the same minute, you know what to do.

Please don't comment about the voting on comments. It never does any good, and it makes boring reading.

https://news.ycombinator.com/newsguidelines.html

They're more tedious to write than to read, if that helps at all.

https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...

Nice point about only 2 daily. But still seems crazy.

The concept was introduced in US equities after the ‘87 crash, but was only consistently implemented for NYSE-listed stocks. In ‘13 these were made consistent and market wide (thus MWCB), set against a widely published value of the S&P (so that the control was predictable; thus how it executed today).

FYI, there are also bidirectional halts that exist intraday (Limit-Up/Limit-Down) that serve a similar purpose and control rapid, uncontrolled movements in individual stocks. These are also defined in exchange regulation and are well defined so that they are predictable.

So are we saying the market will be perpetual because it's not allowed to fail ?

At what point does the https://en.wikipedia.org/wiki/Pareto_efficient not apply ?

If it's manipulated, the efficient seems moot.

(For a more humorous statement: https://www.youtube.com/watch?v=oap6_U8-HvI)

It's beneficial for people who want to buy stocks cheaply or if we truly believe that markets are about price discovery.

Exactly, and when you have an unorderly market, price discovery becomes problematic.

It’s the same reason the single stock LULD bands exist (which put the brakes on both rapid downward and rapid upward movement). Stopping for 15 minutes (or 5 in the case of a LULD pause) is not detrimental to the process of establishing orderly price discovery.

In the event a stock is going to keep rising or falling due to legitimate changes in valuation it will continue to do so (look at NASDAQ’s halts page today to see stocks that have hit their bands multiple times).

this is not incompatible with the believe that prices over a single day (or hour) can be dangerously noisy.

I think you can discover the price tomorrow.

So don't worry, it's only us regular guys that get screwed. Big firms can still contact each other to make deals.

There are a lot of firms whose core business strategy is to keep a level head and take advantage of people who panic and (over)react on days like this. They get damn rich doing it, too.

If you're a little guy who believes that, say, 2019ncov is about to tear the world a new asshole, that's probably a decision you'd like to make for yourself.

I don't doubt what you're saying, but it's a matter of perspective. Sometimes the "panic" is the correct reaction. We're sitting on top of a perfect storm which is shaping up to be a massive potential black swan. And with the current circuit breakers, trading is only interrupted for something similar in concept to "the 99%".

Across all indicators, too! Oil price, US markets, international markets, t-notes, gold price, and a bunch I'm probably not aware of because I'm not a professional investor. China just shut it's economy down for two weeks. Long term outlook is rightfully poor.

Panic is almost never the correct reaction. Deciding that there's going to be a downturn and you should prepare yourself for it financially is one thing, but under what circumstances would it be optimal for you as an individual to panic-sell?

In my mind, panic is the thing you do when you realize that you haven't prepared. That you don't have enough resources for an extended downturn, that you're financially over-leveraged, and that you are in danger of losing your home and being unable to feed yourself and your family. There are TONS of people who are experiencing this right now in China and Italy, and many others of us who will be experiencing it the next few weeks in the rest of the world.

But panic also implies that you don't have time to fix that, and there's nothing you can do as an individual to change it. If that's the case, you probably don't have a lot of investments in the stock market anyway. Or if you do, and you're over-leveraged in the markets because you were gambling with your money instead of investing with it, then yes, you're panic-selling right now.

There is an exception if your religion lets you take your stock with you. I don't believe in one, but I guess if you want to.

And what's the rational thing to do in such a case? Let's say you're at a poker game. And you have a deal: you lose, you get shot, you win, you get your winnings. What is the rational thing to do?

You should go all-in. It is one of the very few cases it is actually rational to do that.

If anything this is helps the little guy, by not completely crushing their stock value, and hurts the big guys who can outlast huge swings (something little guys cannot).

And when everyone is selling, who do you think is buying? No one is moving much of anything for those 15 minutes

For a very popular stock on a typical day the market maker isn't really necessary. Your trades would absolutely execute immediately based on positions other people wanted.

When your stock is more thinly traded, or when things are a bit frantic the market maker is your saviour. When everybody and their dog is selling, the market maker will buy anyway.

Under some circumstances market makers can signal they intended to cease to make a market for specific stocks. When the market makers exit, all hobbyists should make sure they are gone too. Once there is no market maker for the stock you're holding, you will need somebody else to actually take the other side of your trades. "Prices" without a market maker are just a guess, there may be nobody actually promising to take your stock at any price, even if the last trade was for $1.40 your stock might be not sell even at 14¢. This makes for an exciting space in which to gamble with money you can afford to lose if you really know what you're doing, otherwise it's just a way to throw money away.