The Flash Crash of 1962

“The stock market careened downward yesterday,” reported The Wall Street Journal on May 29, 1962, “leaving traders shaken and exhausted.” The Dow Jones Industrial Average fell 5.7% that day, down 34.95, the second-largest point decline then on record.

“The drop took place on volume so heavy,” added the Journal, that the “ticker wasn’t able to finish reporting floor transactions until 5:59 p.m., two hours and 29 minutes after the market closed.”

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Interesting article in this morning’s WSJ on the “market break” of 1962. In 1961, stocks had risen 27%, and then, apparently without warning (who is in charge of those warnings, anyway?), stocks “broke.”

The 1962 WSJ reported that some stocks fell all day, while others just snapped. IBM (prior close, $398.50) fell from $375 to $365 on four downticks in two minutes, fell to $360 moments later, before bottoming at $355. That was a 5.3% drop in 19 minutes. In December 61, IBM was trading at $607. Smaller stocks fell harder. Brunswick Corp. fell 22.3% from its opening price.

The article in today’s Journal points out that some of the parallels between the two flash crashes are uncanny:

“In 1962, high-frequency trading didn’t exist, but “specialists” did. By law, specialists were obligated to try to maintain a fair and orderly market for each stock on the floor of the exchange. However, concluded the SEC’s report, “At no time during the day did the specialist intervene in sufficient volume to slow the rapid deterioration of the market in IBM.”

Makes me wonder if specialists would really have stopped the May 6 crashette . . .

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Source:
Back to the Future: Lessons From the Forgotten ‘Flash Crash’ of 1962
JASON ZWEIG
WSJ, May 29, 2010
http://online.wsj.com/article/SB20001424052748703957604575272791511469272.html

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