Stock exchange bosses and regulators were last night scrambling to explain the cause of a plunge in the Dow Jones Industrial Average, which took the index down by the largest number of points in its history and stoked panic across fragile financial markets.
With share prices already falling sharply in response to the eurozone debt crisis, the Dow went into a sudden freefall a little over an hour before the close of trading in New York. The result was a period of unprecedented chaos that also dragged in currency and credit markets.
Market veterans pointed the finger at the super-fast computer-based trading programmes that have come to dominate activity on the formal stock exchanges and on opaque trading platforms called "dark pools". At 2.20pm, the Dow stood at 10,460, already down 400 points, but then it tumbled 600 points in seven minutes to its low of the day of 9,869, a drop of 9.2 per cent.
That was the biggest intra-day percentage fall since the crash of 1987 and the biggest points fall ever.
Several stocks were trading at seemingly impossible prices: Procter & Gamble (P&G), one of the world's biggest companies, maker of household staples including Ariel washing powder, was down 37 per cent at one point; Accenture, the multinational consulting firm, was quoted at 1 cent, compared to $40 before the chaos began.
The Dow snapped back but continued to swing wildly until the close of trading, when it settled at 10,520.32, down347.80 points on the day, a fall of 3.2 per cent. Investors bolted for the safety of US Treasuries, sending yields on US government debts sharply lower and the dollar sharply higher.
Last night, regulators from inside the exchanges and from the Wall Street watchdog, the Securities and Exchange Commission, were hunting through data on the day's trades to understand the sequence of events.
Traders had reported hearing, variously, that a single dealer had entered thewrong number for a sell order, that a large investor had dumped lots of stock on the market without concern for the consequences, or that there had been suspicious, high-volume trading in stock-market futures.
The chaos will lead to recriminations between exchanges and the newer offexchange electronic trading platforms.
Duncan Niederauer, chief executive of the New York Stock Exchange, which employs specialist share-dealers who can override electronic trading, said on television: "We think we acquitted ourselves well today. The electronic markets are free to do what they want."
But he conceded that the actions of those specialists might have been an important component of the chaos.
They halted trading in stocks such as P&G and Accenture for between 30 and 90 seconds yesterday, in a bid to find an accurate price for the stocks after a period of volatile electronic trading, Mr Niederauer said. With the stocks halted on the NYSE, trading continued on other exchanges and trading platforms in much lower volume, where the lower liquidity meant price declines were exacerbated.
Price declines had been getting worse throughout the day, even before trading went haywire. Investors were digesting more news from Greece and a warning from credit-rating agency Moody's that the bond market could now turn against government debt in other eurozone countries and the UK.
There will now have to be an extended period of work to decide which trades should stand and which trades should be cancelled as being obviously erroneous. Those decisions will save some investors from huge losses - but will rob others of big profits.