Traders on the Pacific Exchange in downtown Los Angeles cheered with relief at 12:30 p.m. PST when an unprecedented halt in trading cut short a dramatic free fall in the Dow Jones industrial average that had nervous investors like Norma Lizaso rushing to check on their stocks.
"What happened?" wailed Lizaso, 56, as she punched up the three stocks she owns on a computer in a Charles Schwab brokerage office downtown. "My stocks are all down!"
Indeed they were. But while many traders and investors took the Dow's 7.2% plunge with remarkable calm, others were asking whether stock prices went down more than necessary.
For some financial experts, the most troubling event Monday was that trading in the nation's stock markets was artificially suspended for the first time ever under rules adopted after the Oct. 19, 1987, market crash, when the Dow declined 22.6%.
Designed to temporarily brake panic selling, these trading suspensions were activated twice during the furious market decline Monday, spooking some traders who called them "unnatural."
"The problem with trading halts is that if they create a sense of doom or historical uniqueness, they can draw more attention to the situation and make people act in a way they wouldn't act otherwise," said Alan F. Skrainka, chief market analyst at brokerage Edward D. Jones & Co.
Under rules known as "circuit breakers," the New York Stock Exchange halted trading for 30 minutes at 2:35 p.m. EST when the Dow had fallen 350 points. It closed for the day at 3:30 p.m. EST when it fell more than 550 points.
"The thing that's most scary about today is that we've never had these market stoppages," said Jack McSweeney, an Irvine stock trader with nearly 30 years of experience. "I don't like to stop trading for any reason." Mark Hagerman, a trader on the Pacific Exchange with the Seidler Cos., a Los Angeles brokerage, agreed.
"It's unnatural," he said. "I think in the long run it's going to make the market conditions more dramatic. People are going to sleep on this and may become even more concerned tomorrow."
William R. Johnston, president of New York Stock Exchange, told reporters in a news conference on the trading floor that the circuitbreakers had worked as designed.
"It gives everybody a chance to think, take some time out and deliberate, ask themselves whether the fundamentals have really changed," Johnston said.
"Trading was orderly, and the markets handled the record volume in stride," the Securities and Exchange Commission said in a statement.
Until Monday, the NYSE had never been halted because of market conditions. It was suspended on such occasions as a 1981 power failure, the 1981 assassination attempt on President Reagan and the 1963 assassination of President Kennedy, Johnston said.
Johnston would not conjecture about how the market would have performed Monday had there been no circuit breakers.
Some market professionals thought the halts might have worsened the situation, however, by creating a sense of urgency among sellers.
"I think [they] accelerated the decline," said Charles Bass, manager of the Nationwide Fund, a growth-stock mutual fund.
"When the market was down 300, people were accelerating their selling because they were afraid that the market was going to close before they got their trades in," he said.
Volume on the NYSE surged after the half-hour break, to around 800,000 shares per minute from less than half that amount.
However, the increase in trading doesn't prove that there was a selling panic, said Lawrence Harris, finance professor at the University of Southern California's Marshall School of Business.
"Remember, there was 30 minutes with no trading, but orders continued to flow in," he said. The orders that built up during the trading halt had to be executed along with the ones that arrived after trading resumed, boosting the volume, he said.
During the first halt in trading on the Pacific Exchange, many traders took time to order sandwiches, eat lunch, put their feet up and relax for 30 minutes.
But as the market bell sounded again, some traders became edgier and more frantic, resulting in some shouting, uncharacteristic for the usually quiet exchange.
"It's a meltdown, baby," yelled one trader, as the blinking lights signaling dropping stock prices seemed to fill the electronic screens at his post.
A loudspeaker warned traders: "Please be advised that if the Dow drops 550 points the exchange will be closed for the rest of the day." Most traders seemed relieved when that level was crossed, the final bell rang and they could go home early.
"We're in uncharted waters as far as these kinds of circuit breakers," said Rad Artukovic, a Pacific Exchange trader, who calmly crunched on cut carrots and celery as the market dropped. "So far, it seems they worked in that they gave people time to calm down."
