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.
