09.16.2011
By Terry Flanagan

Markets Show Resolve Despite Volatility

The recent surge in volatility and trading volumes was a testament to the current robustness of the market infrastructure and its participants.

Despite volatility and record-high trading volumes permeating the marketplace in recent weeks, the underlying infrastructure has held together well.

“It was amazing how well the markets held together in August,” said Kurt Eckert, principal at Wolverine Trading, at the FIA/OIC Equity Options Conference. “We didn’t have any exchanges going down. I’m impressed, because in 2008 we didn’t have this same overall quality in markets when we have volume spikes. The markets handled it very smoothly.”

One of the most notable outages came three years ago in September 2008, when the London Stock Exchange suffered a seven-hour outage, right as the U.S. government made the decision to bailout the struggling Fannie Mae and Freddie Mac. While the LSE’s official explanation as to the cause of the outage concerned a software issue, there was widespread speculation at the time that the exchange’s systems had difficulty coping with the spike in trading activity.

In addition, individual investor confidence is often very fragile in times of volatility. But in one of the wildest single days of trading seen in recent years, one market participant saw positive signs.

“Customers have had a challenging 15 months, from the ‘Flash Crash’ up through now,” said David Fisher, chief executive officer of OptionsXpress, a Charles Schwab unit, during the FIA conference. “What we saw in volatility this time is very different from past volatility periods. Customers were more bearing, put-buying was at record levels. Customers were comfortable doing it, and they’re getting used to these high volatility times.”

“It’s very positive that while there was a scare from flash crash and the ensuing volatility, the retail investors seems to have rebounded and gained faith in the market, and was more willing to stay engaged in markets through August,” added Fisher.

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