Flash Crash on May 29, 1962
While many on Wall Street think our latest flash crash in 2010 was a bit of an anomaly, the truth is this has happened before and it was on May 29, 1962. The Dow Jones Industrial Average fell 5.7% that day, down 34.95, the second-largest point decline then on record.
In 1961, stocks had risen 27%, with leading technology stocks like Texas Instruments and Polaroid trading at up to 115 times earnings, a run-up in the market that had led many investors into complacency.
Terrified investors unaccustomed to volatility saw blue chips like AT&T come down all day, International Business Machines Corp. which had closed the day before at $398.50, bottomed at $355 per share. Less than six months earlier, IBM had traded at $607.
The plunge in smaller stocks like Brunswick Corp. was even sharper, down 22.3% from its opening price.
The parallels between the two flash crashes have the same characteristics. In 1962, some orders were executed at prices substantially different from those which prevailed when the order was entered — similar to the 2010 flash crash. In 1962, high-frequency trading didn’t exist, but “specialists” did who were obligated to try to maintain a fair and orderly market for each stock on the floor of the exchange.
Even in the 1960’s, billions of dollars’ worth of trades were going astray every month, and the major stock exchanges had to close down on Wednesdays so brokers could get a midweek breather to catch up on processing delays. The problems the regulators sought to solve nearly a half-century ago are still with us today.