NYSE on plunge; “It’s like airport security”

In Washington this week, Larry Leibowitz, the frank-talking chief operating officer at the NYSE’s parent company, offered up perhaps the most succinct explanation of what went wrong in the jarring May 6 market plunge. He offered it to a subcommittee of senators growing testy as the weeks tick by without anyone pinpointing what exactly caused the crash, so it may have drifted over a few heads. Just in case, here it is:

“While it would be comforting to know what the triggering cause of this was, I think it’s largely irrelevant. It’s like airport security — we all take our shoes off because someone happened to put a bomb in his shoes. We all wondered what would happen if someone put it in his pants. Then they did,” Leibowitz said, arguing that solutions, such as new stock-market circuit breakers in the works, should instead be the focus.

“We have to look at the factors that make up our market structure, which actually functioned very well on a normal day, but during times of stress sometimes doesn’t. What we have is a loosely coupled, fragmented market that’s very deep at the top of the book, but when the market moves through the top of that book very quickly, it’s not nearly as efficient as it was in the past.”

The “book” lists standing bids and offers at the fifty some exchanges and trading venues in the United States. Books have fattened out considerably over the last decade as trading went high-tech, high-speed, and mostly electronic. But most of that girth is at the “top of book” where orders are very close to the actual price of any given stock. That’s quite unlike the dusty books of the past, where flesh-and-blood floor specialists slowed trading way down — and didn’t worry about holes in their socks.

from Summit Notebook:

Jon Stewart’s brother says mom ‘pretty happy with both’

EXCHANGES-SUMMIT/A bit grayer and world wearier, maybe, but there's no mistaking the family resemblance between NYSE Chief Operating Office Larry Leibowitz and his kid brother Jon Stewart. Unlike the Daily Show host, Leibowitz mostly keeps a low profile, although he did find himself in the spotlight even before his appearance at the Reuters Global Exchanges and Trading Summit on Monday. The Wall Street Journal interviewed him in a story about the NYSE's effort to turn some high frequency traders -- who have been chipping away at the exchange's business -- into exchange floor traders.

Leibowitz may be sick of the Jon Stewart questions, but when pesky Reuters editors and journalists  inevitably raised them, he answered them with relatively good humor.  

"I know my mother's pretty happy with both," the NYSE's resident electronic trading expert said when asked whether it was tough living in the shadow of the celebrated news comedian. Leibowitz allowed that it was hard to imagine two brothers who had chosen more different careers. At this point, they even have different last names, after Leibowitz's younger brother adopted a stage name.