Markets Are Locked Limit Down, but Not Out

Watching the markets and trying to navigate the volatility stemming from the COVID-19 pandemic can be gut-wrenching. Daily trading volume is breaking new records and has tripled since last month from about 6 billion shares to 18 billion shares. I wouldn’t want to tempt fate, but the U.S. markets, from an infrastructure and technology standpoint, are functioning without major issues. Market-makers have, in most cases, stepped up to provide the additional liquidity. Most systems have proven reliable in terms of redundancy and resiliency, and market fragmentation has not contributed to issues in any meaningful way. Some hold the view that computer-driven models have contributed to the size and speed of the moves we are seeing, but given the simultaneous corporate credit issues and collateral crunch, it’s not likely that one factor alone is the cause. Fortunately, by all accounts, there have not been any so-called flash crashes or or market infrastructure outages.

Additionally, the Securities and Exchange Commission isn’t tinkering with the circuit breakers or attempting emergency orders like it did in September 2008. And as for the circuit breakers and their efficacy, they will be an everlasting source of debate, and their configurations will always be imprecise. But you would be hard put to find someone in the last few weeks who says they did not achieve their objective. To not have the circuit breakers would mean even greater volatility, and that might prompt discussions of fully closing the market, which could have much greater negative consequences. The additional risk and uncertainty caused by such a move would only add to the anxiety, not only for the corporations and financial institutions that manage risk and capital on behalf of millions of others in real time but also for the average investor.

My heart goes out to those who have been hit by this, those affected directly by sickness and the many workers and business owners now facing real uncertainty about the future. As a parent, too, it's concerning to think about impact of what is happening right now and how it might affect my child. Parents naturally think first about the safety of their children, and yet much of what is happening is out of our control. But thank goodness for the medical professionals and first responders, who are standing on the front lines of this pandemic. My niece is a working nurse at a New York City hospital and is right in the middle of this. And I worry about her safety, of course, but I’m also proud of and comforted by the work that she and her colleagues are doing right now.

I also can’t help but acknowledge the contributions of the financial industry professionals and stewards of our country’s capital markets system. Both the short- and long-term health of our country depends in a very real way on properly functioning financial and capital markets. In the immediate aftermath of 9/11, there was a strong sense among financial professionals at all levels that restarting the markets was not so much about returning to “normal” but about fighting back. When the markets reopened, it proved that our country would always persevere. So, enormous responsibilities are riding on the shoulders of all the people involved in keeping the economy moving, from Wall Street to Main Street. And, from what I'm seeing today, even though employees are working from home, the markets haven’t skipped a beat.

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